800 TRAVEL SYSTEMS INC, 424B1, 1998-01-16

800 TRAVEL SYSTEMS INC
424B1, 1998-01-16
TRANSPORTATION SERVICES

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<PAGE> 1

Filed Pursuant to Rule 424(b)(1)
Registration No. 333-28237
800 TRAVEL SYSTEMS, INC.
1,350,000 SHARES OF COMMON STOCK
2,700,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(AND 2,700,000 SHARES OF COMMON STOCK ISSUABLE UNDER THE WARRANTS)

All of the 1,350,000 shares (the "Shares") of Common Stock, par value $.01
per share (the "Common Stock") offered hereby and all of the 2,700,000
Redeemable Common Stock Purchase Warrants (the "Warrants") offered hereby are
being sold by 800 Travel Systems, Inc., a Delaware corporation (the "Company").
The Common Stock and the Warrants (collectively, the "Securities") are being
offered separately and not as units, and each is separately transferable. Prior
to this Offering, there has been no public market for the Common Stock and the
Warrants. It is estimated that the initial public offering price will be $5.00
per share for the Common Stock (the "Share Offering Price") and $.125 per
Warrant.

Each Warrant entitles the holder to purchase one share of Common Stock at a
price of $6.25 per share during the five-year period commencing on the date of
this Prospectus. The Warrants are redeemable by the Company for $.05 per Warrant
on not less than 30 nor more than 60 days written notice if the closing price
for the Common Stock for seven trading days during a 10 consecutive trading day
period ending not more than 15 days prior to the date that the notice of
redemption is mailed equals or exceeds $10.00 per share, subject to adjustment
under certain circumstances and provided there is then a current effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the issuance and sale of Common Stock upon
the exercise of the Warrants. Any redemption of the Warrants during the one-year
period commencing on January 13, 1998 shall require the written consent of First
London Securities Corporation, one of the representatives of the Underwriters
(collectively, along with First Liberty Investment Group, Inc., the
"Representatives"). See "Description of Securities."

The initial public offering prices of the Common Stock and Warrants and the
exercise price and other terms of the Warrants have been determined through
negotiations between the Company and the Representatives and are not related to
the Company's assets, book value, financial condition or other recognized
criteria of value. Although the Company has applied for the inclusion of the
Common Stock and the Warrants on the Boston Stock Exchange under the symbols
"IFL" and "IFLW", respectively, and on the Nasdaq SmallCap Market under the
symbols "IFLY" and "IFLYW," respectively, there can be no assurance that an
active trading market in the Company's securities will develop or be sustained.

The Registration Statement, of which this Prospectus forms a part, also
covers the offering by selling securityholders (the "Selling Securityholders")
of 819,566 shares of Common Stock (the "Registered Shares") and 275,000 warrants
(the "Registered Warrants") identical to the Warrants being offered hereby (and
275,000 shares of Common Stock issuable thereunder) (collectively, the
"Registered Securities"), which are not being underwritten but which may be sold
from time to time pursuant to arrangements made by the Selling Securityholders.
All of the Selling Securityholders have agreed not to Sell their Registered
Shares for various periods ranging from 15 days to two years after the closing
of this Offering (the "Closing"). See "Shares Eligible for Future Sale." Sales
of the Registered Securities or the potential of such sales at any time, may
have an adverse effect on the market prices of the securities offered hereby.
The Company will not receive any of the proceeds from the sale of the securities
by the Selling Securityholders. The Company will bear all expenses incurred by
the Selling Securityholders, other than brokerage fees and commissions and fees
of independent counsel, if any.

---------------------

THESE ARE SPECULATIVE SECURITIES, AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM
THE PUBLIC OFFERING PRICE OF THE COMMON STOCK AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 AND "DILUTION."

---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=================================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock................. $5.00 $0.50 $4.50
Per Warrant............................... $0.125 $0.0125 $0.1125
Total(3).................................. $7,087,500 $708,750 $6,378,750
=================================================================================================================================
</TABLE>

(1) Does not include additional underwriting compensation to be received by the
Representatives in the form of (i) a non-accountable expense allowance equal
to 3% of the gross proceeds of this Offering, of which $45,000 has been paid
to date, and (ii) warrants issued to the Representatives for nominal
consideration (the "Representatives' Warrant") to purchase up to 135,000
shares of Common Stock and up to 270,000 Redeemable Common Stock Purchase
Warrants (the "Underlying Warrants") exercisable for a four-year period
commencing December 31, 1998 at exercise prices of 165% and 125%,
respectively, of the initial offering price of the Shares and Warrants (in
each case subject to adjustment). Each Representatives' Warrant will be
exercisable for a four-year period commencing December 31, 1998 to purchase
one share of Common Stock at an exercise price of 125% of the exercise price
of the Warrants offered hereby. The Company has granted to the
Representatives certain registration rights with respect to registration of
the shares of Common Stock and the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants. The Company
has agreed to pay the Representatives upon the exercise or redemption of the
Warrants a fee equal to 5% of the gross proceeds received by the Company
from the exercise of the Warrants and 5% of the aggregate redemption price
for Warrants redeemed. The Representatives or their designees must be
designated by the Warrant holder as having solicited the Warrant in order to
receive the fee. The Company has agreed to indemnify the Underwriters
against certain liabilities arising under the Securities Act. See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated at $933,000
excluding the Representatives' non-accountable expense allowance. The
Company will bear all expenses incurred by the Selling Securityholders,
other than brokerage fees and commissions and fees of independent counsel,
if any.

(3) The Company has granted the Representatives an option (the "Over-Allotment
Option"), exercisable within 45 days from the elective date of the
Registration Statement of which this Prospectus is a part (the "Effective
Date"), to purchase on the same terms as the Securities offered hereby up to
202,500 additional shares of Common Stock and up to 405,000 additional
Warrants solely to cover over-allotments, if any. If the Over-Allotment
Option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $8,150,625,
$815,062.50 and $7,335,562.50, respectively. See "Underwriting."

---------------------

THE SECURITIES OFFERED BY THIS PROSPECTUS ARE BEING OFFERED ON A FIRM
COMMITMENT BASIS BY THE UNDERWRITERS, WHEN, AS AND IF DELIVERED TO AND ACCEPTED
BY THE UNDERWRITERS SUBJECT TO PRIOR SALE. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING THE SECURITIES WILL BE MADE AGAINST PAYMENT THEREFOR
AT THE OFFICES OF FIRST LONDON SECURITIES CORPORATION, DALLAS, TEXAS ON OR ABOUT
JANUARY 21, 1997.

---------------------

<TABLE>
<S> <C>
[800
TRAVEL FIRST LONDON SECURITIES CORPORATION FIRST LIBERTY
SYSTEMS INVESTMENT GROUP, INC.
LOGO]
</TABLE>

---------------------

The date of this Prospectus is January 15, 1998

<PAGE> 2

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement"), pursuant to the Securities Act with respect to the securities
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
THE STATEMENTS CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT
OR OTHER DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY
COMPLETE, AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR
DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT BEING
QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. For further information
with respect to the Company and the securities offered hereby, reference is made
to the Registration Statement and exhibits which may be inspected without charge
at the Commission's principal office at Judiciary Plaza, 450 Fifth Street, NW,
Washington, DC 20549.

Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and in accordance therewith will file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
New York Regional Office, Room 1300, 7 World Trade Center, New York, New York
10048; and at its Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at prescribed rates. The Company's Registration Statement on Form
SB-2 as well as any reports to be filed under the Exchange Act can also be
obtained electronically after the Company has filed such documents with the
Commission through a variety of databases, including among others, the
Commission's Electronic Data Gathering, Analysis And Retrieval ("EDGAR")
program, Knight-Ridder Information, Inc., Federal Filings/Dow Jones and
Lexis/Nexis. Additionally, the Commission maintains a Website (at
http:\\www.sec.gov) that contains such information regarding the Company.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements, quarterly reports containing unaudited
financial statements and such other reports as the Company deems appropriate or
as may be required by law.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OR
WARRANTS INCLUDING OVER-ALLOTMENT. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"PLAN OF DISTRIBUTION."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) and the pro
forma financial information appearing elsewhere in this Prospectus. The
consummation of the Offering will occur concurrently with, and is a condition
precedent to, the consummation of the merger of The Joseph Stevens Group, Inc.
("Stevens") with and into the Company, with Company as the surviving corporation
(the "Stevens Merger"). See "The Stevens Merger." Unless otherwise noted, all
information in this Prospectus assumes (i) no exercise of the Over-Allotment
Option and (ii) the consummation of the Stevens Merger and the issuance of
383,333 shares of Common Stock in connection therewith. Unless the context
otherwise requires, references in this Prospectus to the Company are to 800
Travel Systems, Inc. and to the businesses previously conducted by its
predecessor, 1-800 Low-Air Fare, Inc., and by Stevens.

THE COMPANY

The Company is among the 100 largest independent travel agencies in the
United States. The Company provides low-priced airline tickets for domestic and
international travel to its customers through its easy-to-remember, toll-free
numbers "1-800-LOW-AIR-FARE" (1-800-569-2473) and "1-800-FLY-4-LESS"
(1-800-359-4537). The Company has approximately 140 reservation agents and
operates 365 days a year out of the Company's reservation centers in Tampa,
Florida and San Diego, California. The Company strives to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of reservation by utilizing the SABRE travel reservation system developed
by American Airlines, Inc. The SABRE system maintains approximately 45 million
airfares, including those of all major U.S. and international commercial
airlines, and is updated throughout the day to reflect the airlines' latest
ticketing information. The Company estimates it receives an average of 12,500
calls per day (including repeat calls from callers unable to be serviced or
calling to confirm reservations) at its reservation centers, of which the
Company has the current capacity to answer only approximately 4,800. The Company
has increased the number of its reservation agents from 30 at the end of 1995 to
approximately 140 presently. The Company intends to use approximately $1 million
of the proceeds of this Offering to expedite the training of additional
reservation agents. The Company already has the equipment and infrastructure
necessary to answer all the calls it is currently unable to answer.

The Company's operations generate revenues principally from (i) the
commissions on air travel tickets, (ii) override commissions on air travel
tickets the Company books on Continental, United, Northwest, TWA, Carnival,
America West, America Trans Air, Trans Brazil, Mexicana and Korean airlines,
(iii) segment incentives under its contract with SABRE, (iv) co-op promotions
with other suppliers of travel-related products and services, such as
long-distance telephone companies, car rental companies and hotels, and (v)
service fees that it charges its customers.

The Company markets its services primarily by advertising its various
toll-free numbers in approximately 260 Yellow Pages directories covering a total
population of 128 million people in those standard metropolitan areas in the
continental United States ("SMA's") with populations whose general travel
profiles are attractive to the Company. The Company also maintains a home page
on the World Wide Web (www.lowairfare.com) which enables its customers to access
its customized Turbo SABRE system through their personal computers.

The Company's operating strategy is to (i) strive to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of reservation, (ii) focus on consumer air travel, which the Company
believes is the most profitable segment of the travel industry, (iii) provide
convenient, quick service to its customers, (iv) maintain low operating costs by
utilizing only two operating facilities, (v) use state-of-the-art technology to
maximize operating efficiencies, (vi) constantly review and update its
relationships with the major airlines and SABRE to obtain favorable commission
structures, and (vii) provide incentives to its sales force through a
performance-based compensation structure. See "Business -- Operating Strategy."

The Company's growth strategy is to (i) grow internally as quickly as
practicable in order to be able to service the approximately 7,700 calls per day
that the Company is not currently able to service, (ii) further
3
<PAGE> 4

penetrate existing markets and enter new markets by commencing marketing
activities and (iii) make strategic acquisitions of other telemarketing travel
companies with existing customer bases or valuable intellectual property. See
"Business -- Growth Strategy."

The travel industry is one of the world's largest industries, with $3.4
trillion in sales in 1994 according to the World Travel Organization. According
to the Travel Weekly 1996 U.S. travel agency survey (the "Travel Weekly
Survey"), revenues for U.S. travel agencies in 1995 exceeded $100 billion,
representing an increase of almost 100% since 1985 and 9% since 1993. The U.S.
travel agency industry is a highly fragmented industry comprised of numerous
small agencies, but tending towards large volume agencies, according to the
Travel Weekly Survey. In contrast to 1985, when small agencies (those reporting
between $1 million and $5 million in annual sales) were responsible for 62% of
all U.S. travel agency revenues, in 1995 such agencies were responsible for only
41% of all U.S. travel agency revenues, even though they comprised 56% of all
travel agency locations. The Company believes that only one other travel agency
operates in a manner similar to the Company by emphasizing low-cost airfare,
nationally advertising toll-free telephone numbers that spell out their
respective advertising slogans and processing calls on such numbers at
centralized reservation centers. The Company believes that operating in such
manner distinguishes the Company and its competitor from other travel agencies
as "telemarketing travel companies." See "Business -- Industry Overview."

On November 11, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with The Joseph Stevens Group, Inc. ("Stevens")
and its sole shareholder, which agreement was amended and restated as of May 30,
1997 and further amended as of September 8, 1997, October 17, 1997 and December
16, 1997. Stevens provides airline tickets for domestic and international travel
to consumers through its "1-800-FLY-4-LESS" (1-800-359-4537) toll-free number
out of its reservation center in San Diego, California. Pursuant to the Merger
Agreement, the parties agreed that upon the closing of the Offering, Stevens
will be merged with and into the Company, with the Company as the surviving
corporation (the "Stevens Merger"). See "The Stevens Merger."

The Company was incorporated in Delaware in November 1995. The Company's
principal executive offices are located at 4802 Gunn Highway, Suite 140, Tampa,
Florida 33624 and its telephone number is (813) 908-0404.

THE OFFERING

Common Stock Offered....... 1,350,000 shares

Warrants Offered........... 2,700,000 warrants

Common Stock Outstanding:

Prior to the Offering.... 5,959,709 shares (1)

After the Offering....... 7,693,042 shares (2)

Warrants Outstanding:

Prior to the Offering.... none

After the Offering....... 2,700,000(3)

Estimated Net Proceeds..... $5,233,125(4)

Use of Proceeds............ The Company intends to use the net proceeds of the
Offering to pay the note issued in connection with,
and extension fees due under, the Stevens Merger
and repay a lender of short-term loans; train
additional reservation agents; expand its
advertising and marketing campaign; purchase
equipment; and for working capital and general
corporate purposes. The Company will not receive
any of the proceeds from the sale of securities by
the Selling Securityholders.

4
<PAGE> 5

Trading Symbols(5):

Boston Stock Exchange:

Common Stock.......... IFL

Warrants.............. IFLW

Nasdaq SmallCap Market:

Common Stock.......... IFLY

Warrants.............. IFLYW

Risk Factors............... The Common Stock and the Warrants offered hereby
are speculative and involve a high degree of risk.
Investors should carefully consider the risk
factors enumerated herein before investing in the
Common Stock and the Warrants. See "Risk Factors"
and "Dilution."
- ---------------

(1) Excludes (i) 383,333 shares of Common Stock issuable in connection with the
Stevens Merger, (ii) 250,000 shares issuable pursuant to warrants identical
to those offered hereby exercisable for 250,000 shares of Common Stock
issuable in connection with the Stevens Merger and such additional shares as
may be issued pursuant to make-whole provisions contained in the Merger
Agreement, (iii) 100,000 shares issuable upon exercise of a warrant granted
to Perry Trebatch, (iv) 87,500 shares of Common Stock issuable upon exercise
of stock options granted pursuant to the Company's 1997 Stock Option Plan,
(v) 600,000 shares of Common Stock issuable upon exercise of options issued
and to be issued to directors and a former director of the Company, (vi)
25,000 shares issuable upon exercise of warrants, identical to those offered
hereby, to be granted to the Company's President upon closing of this
Offering and (vii) 50,000 shares to be issued to the Company's President on
September 1, 1998 (assuming he is then employed by the Company).

(2) Excludes (i) items (ii) through (vii) referred to in footnote 1, (ii) the
2,700,000 shares of Common Stock issuable upon the exercise of the Warrants
offered hereby and (iii) the 405,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants and the Underlying Warrants
therein.

(3) Excludes (i) warrants identical to those offered hereby exercisable for
250,000 shares of Common Stock issuable in connection with the Stevens
Merger, (ii) warrants identical to those offered hereby exercisable for
25,000 shares of Common Stock to be granted to the Company's President upon
closing of this Offering and (iii) the Representatives' Warrants and
Underlying Warrants therein.

(4) After subtracting the underwriting discounts and commissions and estimated
offering expenses by the Company, including a 3% non-accountable expense
allowance to the Representative.

(5) Boston Stock Exchange and Nasdaq SmallCap Market symbols do not imply that
an established public trading market will develop for any of these
securities, or if developed, that any such market will be sustained. See
"Risk Factors -- Possible Applicability of Rules Relating to Low-Priced
Stock; Possible Failure to Continue to Qualify for Boston Stock Exchange or
Nasdaq SmallCap Market Listing."

5
<PAGE> 6

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

<TABLE>
<CAPTION>
PREDECESSOR BUSINESS(1) THE COMPANY
---------------------------- -----------------------------------------------------------
ELEVEN
MONTHS MONTH NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997(2)
------------ ------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues............. $ 622,017 $ 1,090,938 $ 133,970 $ 3,235,777 $ 2,189,881 $6,016,416
Operating Expenses:
Payroll,
commissions and
employee
benefits......... 790,259 1,115,403 175,604 2,490,770 1,945,469 2,905,981
Telephone.......... 165,979 392,869 14,527 702,870 451,673 787,488
Ticket Delivery
Expense.......... -- 138,798 17,896 407,579 215,810 523,789
Advertising........ 459,657 333,520 437 137,223 87,244 178,180
General and
Administrative... 1,053,530 1,156,777 53,869 1,768,058 959,526 1,605,833
Interest Expense... 46,417 168,857 4,017 1,114,298 897,070 83,994
Other Income......... -- 41,959 1,782 12,610 69,554 4,726
Net (Loss)........... (1,894,425) (2,173,327) (130,598) (3,372,411) (2,297,357) (64,123)
Net (Loss) per
Share.............. (.50) (.57) (.03) (.68) (.47) (.01)
Weighted Average
Number of Common
Shares
Outstanding........ 3,830,000 3,830,000 3,840,000 4,947,823 4,894,600 5,956,859
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA (3):
Revenues.................................................. $ 4,900,736 $6,016,416
Operating Expenses:
General and Administrative.............................. 7,049,022 5,713,557
Interest Expense........................................ 1,379,226 202,344
Amortization and Depreciation........................... 328,799 287,714
Other Income.............................................. 12,610 4,726
Net Loss.................................................. (3,843,701) (182,473)
Net Loss per Share........................................ (.72) (.03)
Weighted Average Number of Common Shares Outstanding...... 5,331,156 6,340,192
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, 1997
------------------------- SEPTEMBER 30, 1997 (PRO FORMA AS
1995 1996 1997 (PRO FORMA)(4) ADJUSTED)(5)
----------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit)........... $ (731,210) $ (363,201) $ (942,078) $(2,445,078) $ 3,396,705
Total Assets........................ 1,444,298 2,788,770 3,198,826 6,618,491 10,348,616
Long-Term Debt...................... 60,000 30,000 30,000 30,000 30,000
Total Stockholders' Equity.......... 613,882 1,500,466 1,466,342 3,383,007 8,616,132
</TABLE>

Footnotes On Next Page
6
<PAGE> 7

NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

(1) On December 1, 1995, the Company acquired certain of the assets and assumed
certain liabilities of 1-800-Low Airfare, Inc. (the "Predecessor Business").
Pro forma results of operations as if the Company had acquired the
Predecessor Business on January 1, 1995 would not be materially different
and, accordingly, are not presented.

(2) Pursuant to the Interim Operating Agreement the Company assumed the
operations of Stevens as of January 1, 1997 and, therefore, the Statement of
Income Data of the Company reflects the combined operations of the Company
and Stevens for the first half of 1997.

(3) The unaudited Pro Forma Statement of Income Data for the year ended December
31, 1996 and the nine months ended September 30, 1997, gives pro forma
effect to the Stevens Merger as if the Stevens Merger occurred on January 1,
1996 and January 1, 1997, respectively.

(4) Balance sheet data gives pro forma effect to the Stevens Merger as if it
occurred on September 30, 1997.

(5) Balance sheet data gives pro forma effect to the items referred to in
footnote 4 as adjusted to give effect to the consummation of the offering
and the application of the estimated net proceeds as described under "Use of
Proceeds."
7
<PAGE> 8

RISK FACTORS

The securities offered hereby are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in the
Company. In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors in
evaluating an investment in the securities offered hereby.

HISTORY OF OPERATING LOSSES; FUTURE OPERATING RESULTS

Although the Company had net income before taxes of $130,000 and $143,000
in the quarters ended June 30 and September 30, 1997, respectively, the Company
incurred losses and generated negative cash flows from continuing operations in
each of the Company's fiscal years since inception. For the eleven months ended
November 30, 1995, the one month ended December 31, 1995, the year ended
December 31, 1996, and the nine months ended September 30, 1997, the Company's
predecessor and the Company incurred losses of $2,173,327, $130,598, $3,372,411
and $64,123 respectively. There can be no assurance that the Company will
operate profitably in the future or that the Company will be successful in
implementing and executing its operating and growth strategies. As of December
31, 1996, the Company had negative working capital and as of September 30, 1997,
the Company had a retained deficit of $3,567,132. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"Business" and the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Prospectus.

CAPITAL REQUIREMENTS

The Company is dependent upon the proceeds of this Offering and the
anticipated cash flow from operations to complete its current expansion plans.
Should the Company's cash flow from operations fail to meet anticipated levels,
or should its costs and capital expenditures exceed the amounts currently
expected to be required, the Company could be required to seek unanticipated
financing in the future. There can be no assurance that the Company will be able
to raise such capital or financing when needed or on acceptable terms, and
therefore, the Company may be unable to achieve its goals, including anticipated
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Operating Strategy."

USE OF PROCEEDS

Of the approximately $5,233,125 of net proceeds from this Offering,
approximately $1,690,000 or 32% will remain unallocated and will be used for
general corporate purposes. Accordingly, management will have broad discretion
with respect to the expenditure of this portion of the net proceeds. See "Use of
Proceeds."

RAPID EXPANSION OF BUSINESS

The Company's operations and business have expanded substantially, with a
large increase in reservation agents and sales in a relatively short period of
time. To properly manage its rapid growth, the Company has been and will be
required to expend significant management and financial resources. There can be
no assurance that the Company's management will be able to manage its growth and
operate a larger organization efficiently or profitably. See "Business-Operating
Strategy."

COMPETITION

The travel agency business is characterized by intense competition. Many of
the Company's competitors, which include local, regional and national travel
agencies, possess significantly greater financial, personnel and other resources
than the Company. Certain of the Company's competitors use a low-price discount
strategy to expand their market share and a number of travel agencies use
toll-free phone lines that compete with the Company's services. If any of the
companies using a discount strategy were to focus their marketing efforts on the
Company's telemarketing niche, the Company's results of operations could be
adversely affected. In addition, the Internet permits consumers to have direct
access to travel providers as well as distribution systems like the SABRE
system, thereby by-passing travel agents. In recent years, airline ticket prices
have decreased primarily as a result of lower costs and greater competition in
the airline industry. The Company's revenues are based upon the number of
tickets it sells and on a percentage of the price of such tickets and are

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<PAGE> 9

therefore adversely affected by decreases in the price of airline tickets. The
Company believes that significant price-based competition will continue to exist
in the airline industry and the Company's markets for the foreseeable future.
Any significant decrease in airline ticket prices could adversely affect the
Company's results of operations. The Company may experience increased
competition in the future as its competitors combine to form larger companies.
There can be no assurance that the Company will be competitive with larger
travel agencies in the future or that the Company will maintain its size
relative to its competitors. See "Business --Competition."

RISKS RELATING TO AIRLINE COMMISSIONS

Recently, United, Delta, Northwest, American and US Airways announced
reductions in the commissions that they will pay travel agents from
approximately 10% to approximately 8%. The Company conducts the majority of its
business through other airlines (TWA Discounter (defined below) and
Continental); however, there can be no assurance that the TWA Discounter,
Continental and other airlines serviced by the Company will not institute
similar reductions which could reduce the Company's revenues. Such reductions,
if instituted, could have a material adverse effect on the Company. See
"-- Risks Relating to Override Commissions."

RISKS RELATING TO OVERRIDE COMMISSIONS

The Company is able to offer its customers attractive airfares in large
part due to the favorable override commission arrangements it has obtained for
selling tickets on Continental, United, Northwest, the TWA Discounter, Carnival,
America West, America Trans Air, Trans Brazil, Mexicana and Korean airlines. For
example, the Company is able to offer attractive fares on TWA because of its
override commission arrangement with a consolidator which sells tickets on TWA
at a discount (the "TWA Discounter"). In 1996 and the first nine months of 1997,
approximately 21% and 26%, respectively, of the Company's tickets were sold on
TWA through the TWA Discounter, which accounted for approximately 28% and 34% of
the Company's revenues for such periods, respectively. The Company estimates
that the TWA Discounter will be able to continue selling tickets on TWA only
until the year 2001. Moreover, there can be no assurance that the Company's
agreement with the TWA Discounter will be extended beyond its current expiration
date in February 1998. The Company understands that the report of TWA's
independent auditors included in the annual report for TWA's most recently ended
fiscal year contains a qualification concerning TWA's ability to continue as a
going concern. Any interruptions in the operations of TWA or in its relationship
with the TWA Discounter could have a material adverse effect on the Company. In
addition, the override commission agreements with the other airlines are on a
year-to-year basis. If and when the TWA Discounter is no longer able to sell TWA
tickets, or such agreement otherwise expires, or if the Company is unable to
extend its current override commission arrangements with other carriers or enter
into similar arrangements with similar carriers, the Company could lose its
competitive advantages and its business could be materially adversely affected.
See "Business -- Competition" and "-- Operations."

DEPENDENCE ON TWO CARRIERS FOR SUBSTANTIAL PORTIONS OF REVENUES

During 1996 and the first nine months of 1997, the Company generated
approximately 51% of its revenues from sales of tickets on Continental Airlines
(17%) and TWA (34%). As a result of a combination of their low fares, the
Company's favorable override commissions with respect to tickets sold on them
and the Agreement with the TWA Discounter, the Company is often able to offer
the best fares to its customers on these particular carriers and, consequently,
sells a large number of tickets on them. If Continental, TWA or the TWA
Discounter were to discontinue service, refuse to sell tickets to the Company,
impose higher fares relative to other airlines or terminate the Company's
favorable override commission structures, the Company may not be able to sell as
many tickets as it currently does, or maintain the level of profitability on
each sale that it currently has, and the Company's business and results of
operation could be adversely affected. The Company understands that the report
of TWA's independent auditors included in the annual report for TWA's most
recently ended fiscal year contains a qualification concerning TWA's ability to
continue as a going concern. See "Risk Factors -- Risks Relating to Override
Commissions."

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CHALLENGES OF BUSINESS INTEGRATION

The full benefits of the combination of the Company and Stevens will
require integration of each company's administrative, finance, sales and
marketing organizations, the coordination of each company's sales and marketing
efforts and the implementation of appropriate operational, financial and
management systems and controls. This will require substantial attention from
the senior management teams of the Company and Stevens, which have limited
experience integrating the operations of companies of the size of the Company
and Stevens and whose members have not previously worked together. The diversion
of management attention, as well as any other difficulties which may be
encountered in the transition and integration process, could have an adverse
impact on the revenue and operating results of the Company. There can be no
assurance that the Company will be able to integrate its operations and those of
Stevens successfully. In addition, the Unaudited Pro Forma Combined Financial
Information contains adjustments relating to the integration of Stevens'
operations with those of the Company. Although these adjustments are based upon
available information and certain assumptions the Company considers reasonable
as of the date of this Prospectus, actual amounts could differ from those set
forth therein. Moreover, no assurance can be given that the anticipated impact
of the integration of Stevens upon the Company's financial condition and results
of operations as presented in such pro forma information will be as presented.
See "Unaudited Pro Forma Combined Financial Information."

RISKS RELATING TO THE AIRLINE INDUSTRY

Developments in the airline industry may result in a decrease in the price
or number of tickets the Company sells. See "Business -- Competition." Concerns
about passenger safety may result in a decrease in passenger air travel and a
consequent decrease in the number of tickets the Company sells. There can be no
assurance that any such developments will not occur or that the Company will not
be adversely affected by any such decrease in the level of passenger air travel.

DEPENDENCE ON SABRE SYSTEM

The Company's ability to quote air travel ticket prices, make reservations
and sell tickets is dependent upon its contractual right to use, and the
performance of the SABRE electronic travel reservation system. In April 1996,
the Company entered into a five-year agreement with The SABRE Group, Inc. to
lease the SABRE system in its Tampa headquarters and in November 1996, entered
into a five-year agreement to lease the SABRE system in its San Diego
reservation center. If the Company were to lose the contractual right to use the
SABRE system through its inability to renew the agreements upon expiration
thereof or through the Company's default under the agreements during the
respective terms thereof, the Company would not be able to conduct operations
until a replacement system was installed and became operational. Only a very
limited number of companies provide reservation systems to the travel agency
industry. There can be no assurance that a replacement system could be obtained
or, if obtained, leased on favorable terms or installed in time to successfully
continue operations.

If the SABRE system were to cease functioning, the Company would not be
able to conduct operations until a replacement system were installed and became
operational. There can be no assurance that a replacement system could be
obtained or, if obtained, installed in time to successfully continue operations.
During any interruption in the operation of SABRE, the Company would lose
revenues. Other travel agencies using other travel reservation systems would not
be subject to such interruption of their operations, and the Company may lose
market share to such competitors. Upon the interruption of the operation of the
SABRE system, the Company could decide to commence operations with another
travel reservation system. See "Business -- SABRE Technology." Such a change in
reservation systems could incur substantial expenses for acquiring the right to
use such system and retraining its reservation agents. In addition, any
impairment of the SABRE system which does not cause it to cease operations
could, nevertheless, adversely affect the quality of the Company's services,
resulting in lost revenues or market share and could require the Company to
subscribe to a different travel reservation system.

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DEPENDENCE UPON KEY PERSONNEL

The success of the Company is substantially dependent upon the continuing
services of Mark D. Mastrini, Jerrold B. Sendrow and Biagio Bellizzi, as well as
other key personnel. While the Company has employed a number of executives with
industry experience, the loss of Messrs. Mastrini, Sendrow or Bellizzi could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company does not maintain life insurance policies
on the lives of Messrs. Mastrini, Sendrow or Bellizzi. See "Management."

RISKS RELATING TO INTELLECTUAL PROPERTY

The Company markets its services in the United States under the names,
"1-800-LOW-AIR-FARE," "1-800-FLY-4-LESS" and "1-888-999-VUELA."
"1-800-FLY-4-LESS," together with its logo, is a federally registered service
mark in the name of the Company. The Company has filed an application to
register the "1-800-LOW-AIR-FARE" name and logo and the Spanish language name,
"1-888-999-VUELA," as federal service marks with the U.S. Patent and Trademark
Office. There can be no assurance that such service marks will issue or of the
effect such failure might have on the Company.

On January 12, 1998, the Company received a letter from counsel for Travel
800, LLC, a wholly-owned subsidiary of Travel Services International, Inc.
("Travel") (i) stating that the Company's use and advertisement of its "1-800
LOW-AIRFARE" mark and corresponding number is causing confusion among consumers
and regulatory problems for Travel, (ii) claiming that Travel commenced use and
promotion of its "1-800 LOW-FARE" mark and number prior to the Company's use and
advertisement of its "1-800 LOW-AIRFARE" mark and number, and (iii) requesting
that the Company cease and desist from continued use and advertisement of its
"1-800 LOW-AIRFARE" name and corresponding number. The Company intends to
investigate the facts underlying Travel's letter, and to expeditiously formulate
a response thereto. The Company will vigorously assert all of its rights under
applicable law. In the event that the Company decides to forego its right to use
the "1-800 LOW-AIRFARE" mark, the Company will promote its "1-800 FLY-FOR-LESS"
mark and number. The Company does not believe that the above-described matter or
the outcome thereof will have a material adverse effect on the Company.

CONTROL BY EXISTING STOCKHOLDERS

Following the completion of this Offering, the existing stockholders of the
Company will own in excess of 50% of the outstanding shares of Common Stock. As
a result, these persons and entities effectively will be able to control all
matters requiring approval of the stockholders of the Company, including the
election of the entire Board of Directors. See "Principal Stockholders" and
"Description of Securities."

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") and Amended and Restated Bylaws ("Bylaws") may
be deemed to have anti-takeover effects and may discourage, delay, defer or
prevent a change in control of the Company. These provisions (i) divide the
Company's Board of Directors into three classes, each of which will serve for
different three year periods and (ii) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at annual stockholders' meetings. In
addition, certain provisions of the Delaware General Corporation Law also may be
deemed to have certain anti-takeover effects. See "Description of
Securities -- Anti-takeover Effects of Certain Provisions of the Company's
Certificate of Incorporation and Bylaws."

PREFERRED STOCK

The Certificate authorizes the issuance of 1,000,000 shares of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without shareholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
materially adversely affect the voting power

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or other rights of the holders of Common Stock. In the event of issuance, the
preferred stock could be used, under certain circumstances, as a method of
discouraging, delaying, or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future. See "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 7,693,042 shares of
Common Stock outstanding (7,895,542 if the Over-Allotment Option is exercised in
full), of which 1,350,000 shares of Common Stock are being offered by the
Company.

Of the 5,959,709 previously issued and outstanding shares of Common Stock,
519,566 shares are being registered on behalf of the Selling Securityholders,
and the remainder will become available for resale 90 days after the Closing,
subject in all events to the provisions of Rule 144 under the Securities Act
("Rule 144"). Of such previously issued and outstanding shares (including the
shares being registered on behalf of the Selling Securityholders), the holders
of 25,000 shares have agreed not to offer, sell or otherwise dispose of ("Sell")
such shares for a period of 15 days after the Closing; the holders of 2,829,243
shares (including all of the holders of the Common Stock being registered) have
agreed not to Sell such shares for one year after the Closing; the holders of
350,000 shares have agreed not to Sell such shares for 18 months after the
Closing; and the holders of 2,471,966 shares (including the officers and
directors of the Company and Vito Balsamo, a former director of the Company, and
his transferees) have agreed not to Sell such shares for 2 years after the
Closing.

In addition, the sole stockholder of Stevens (also a Selling
Securityholder) has agreed with respect to the 300,000 registered shares out of
the 383,333 shares to be received pursuant to the Merger Agreement, that none of
such shares will be Sold over-the-counter or over a public exchange within 30
days of the closing of the Merger; that during the following eleven months it
may publicly Sell no more than 4,546 shares per month (with any unsold
allowances carried forward to future months) and that during the following
twelve months it may publicly Sell no more than 20,833 shares per month (with
any unsold allowances carried forward to future months). The sole stockholder of
Stevens has agreed with respect to the remaining 83,333 shares to be received
pursuant to the Merger Agreement, that none of such shares will be Sold within
90 days of the Closing and that during the following seven months it will sell
no more than 11,905 shares per month (with any unsold allowances carried forward
to future months).

The Company is unable to predict the effect, if any, that sales of the
Registered Shares or sales of shares under Rule 144 (or the potential for such
sales) or otherwise may have on the market price of the Common Stock prevailing
from time to time. Future sales of substantial amounts of Common Stock in the
public market could impair the Company's ability to raise capital through an
offering of securities and may adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale."

ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS

The public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants, as well as the exercise price of the warrants
underlying the Representatives' Warrant, have been determined solely by
negotiations between the Company and the Representatives. Among the factors
considered in determining these prices were the Company's current financial
condition and prospects and the general condition of the securities market.
However, the public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants and the warrants underlying Representatives'
Warrant do not necessarily bear any relationship to the Company's assets, book
value, earnings or any other established criterion of value. See "Underwriting."

DILUTION

Assuming an initial offering price of $5.00 per share, investors purchasing
shares of Common Stock in this offering will experience immediate dilution of
$4.45 per share (89% of the initial public offering price per share). See
"Dilution." The Merger Agreement with Stevens provides for the issuance of
warrants exercisable

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for 250,000 shares of Common Stock, which warrants have the same exercise price
and are entitled and subject to the same terms and conditions as the Warrants
being offered hereby. The Merger Agreement also provides that if on the second
anniversary of the date of the closing of this Offering the value of the portion
of the 383,333 shares issued to the Stevens' shareholder, then held by the
Stevens' shareholder, together with the fair market value of any consideration
received in exchange for the shares no longer held by the Stevens' shareholder,
is less than $2,571,429, the Company shall issue to the Stevens' shareholder
such number of shares of the Company's Common Stock, based upon its then bid
price, as is necessary to make-up any such deficiency. See "The Stevens Merger."

NECESSITY TO MAINTAIN CURRENT PROSPECTUS AND REGISTRATION STATEMENT

The Company must maintain an effective registration statement on file with
the Commission before any Warrant may be redeemed or exercised. It is possible
that the Company may be unable to cause a registration statement covering the
Common Stock underlying the Warrants to be effective. It is also possible that
the Warrants could be acquired by persons residing in states where the Company
is unable to qualify the Common Stock underlying the Warrants for sale. In
either event, the Warrants may expire, unexercised, which would result in the
holders losing all the value of the Warrants.

STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS

Holders of the Warrants have the right to exercise the Warrants only if the
underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. The Company cannot issue shares of Common Stock
to holders of the Warrants in states where such shares are not qualified,
registered or exempt. The Company has qualified the Warrants for listing on the
Boston Stock Exchange, which provides for blue sky registration in over 20
states. See "Description of Securities -- Warrants."

LIMITED MARKET FOR THE COMMON STOCK AND WARRANTS

The Company intends to register the Common Stock and Warrants for sale
under the securities laws of only a limited number of states. Consequently,
until the Common Stock and Warrants are registered for sale in other states or
become eligible for exemptions for resales in such states, there will be only a
limited market in which investors will be able to resell Common Stock and
Warrants purchased hereunder.

REDEEMABLE WARRANTS AND IMPACT ON INVESTORS

The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of a
Warrant to exercise the Warrant and pay the exercise price at a time when it may
be disadvantageous for the holder to do so, to sell the Warrant at the then
current market price when the holder might otherwise wish to hold the Warrant
for possible additional appreciation, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrant in the
event of a call for redemption. Holders who do not exercise their Warrants prior
to redemption by the Company will forfeit their right to purchase the shares of
Common Stock underlying the Warrants. The foregoing notwithstanding, the Company
may not redeem the Warrants at any time that a current registration statement
under the Securities Act covering the sale of the shares of Common Stock
issuable upon exercise of the Warrants is not then in effect. See "Description
of Securities -- Warrants."

REPRESENTATIVES' POTENTIAL INFLUENCE ON THE MARKET

Although the Representative has advised the Company that it intends to make
a market in the Common Stock and the Warrants, it will have no legal obligation
to do so. The prices and the liquidity of the Common Stock and the Warrants may
be significantly affected by the degree, if any, of the Representatives'
participation in the market. No assurance can be given that any market making
activities of the Representative, if commenced, will be continued. See
"Underwriting."

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POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS OR "PENNY STOCK";
POSSIBLE FAILURE TO CONTINUE TO QUALIFY FOR BOSTON STOCK EXCHANGE OR NASDAQ
SMALLCAP MARKET LISTING

The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the Company
anticipates that the price at which the shares of Common Stock offered to the
public pursuant to this Offering will be equal to or in excess of $5.00, the
Warrants offered hereby will initially be "penny stocks" and become subject to
rules that impose additional sales practice requirements on broker/dealers who
sell such securities to persons other than established customers and accredited
investors. There can be no assurance that the Common Stock or the Warrants will
trade for $5.00 or more per security after the Offering. Consequently, the
"penny stock" rules may restrict the ability of broker/dealers to sell the
Company's securities and may affect the ability of purchasers in this Offering
to sell the Company's securities in a secondary market.

Although the Company has been approved for listing of the Common Stock and
the Warrants on the Boston Stock Exchange and on the Nasdaq SmallCap Market,
there can be no assurance that a trading market for the Common Stock and the
Warrants will develop or, if developed, will be sustained. Furthermore, there
can be no assurance that the securities purchased by the public hereunder may be
resold at their original offering price or at any other price.

In order to qualify for initial listing on the Boston Stock Exchange, a
company must, among other things, have at least $3,000,000 in total assets (of
which $2,000,000 are tangible assets), a public float of at least 750,000 shares
(with an aggregate value of at least $1,500,000), a minimum of 600 beneficial
public stockholders owners (exclusive of affiliates) and a minimum bid price for
its securities of $2.00 per share. For continued listing on the Boston Stock
Exchange, a company must maintain a public float of 150,000 shares (having a
value of at least $500,000) and $1.0 million in total assets, 250 beneficial
public stockholders, and stockholders' equity of $500,000. The failure to meet
these and other maintenance criteria in the future may result in the
discontinuance of the listing of the Common Stock and Warrants on the Boston
Stock Exchange.

In order to qualify for initial listing on the Nasdaq SmallCap Market, a
company must, among other things, have at least $4,000,000 in net tangible
assets, $5,000,000 "public float," and a minimum bid price for its securities of
$4.00 per share. For continued listing on the Nasdaq SmallCap Market, a company
must maintain $2,000,000 in net tangible assets, and a $1,000,000 market value
of the public float. In addition, continued inclusion requires two market makers
and a minimum bid of $1.00 per share. The failure to meet these maintenance
criteria in the future may result in the discontinuance of the listing of the
Common Stock and Warrants on the Nasdaq SmallCap Market.

If the Company is or becomes unable to meet the continued listing criteria
of the Boston Stock Exchange the Nasdaq SmallCap Market and becomes delisted
therefrom, trading, if any, in the Common Stock and the Warrants would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or, if then available, the "Electronic Bulletin Board" administered by
the National Association of Securities Dealers, Inc. (the "NASD"). In such
event, the market price of the Common Stock and the Warrants may be adversely
impacted. As a result, an investor may find it difficult to dispose of or to
obtain accurate quotations as to the market value of the Common Stock and the
Warrants.

EXERCISE OF REPRESENTATIVES' PURCHASE WARRANTS

In connection with this Offering, the Company will sell to the
Representatives, for nominal consideration, a Representatives' Warrant to
purchase 135,000 shares of Common Stock and 270,000 Warrants (the "Underlying
Warrants") from the Company. The Representatives' Warrant will be exercisable
for a four-year period commencing one year from the Effective Date of this
Offering at an exercise price of 165% and 125%, respectively, of the price at
which the Common Stock and Warrants are sold to the public, subject to
adjustment. The Representatives' Warrant may have certain dilutive effects
because the holders thereof will be given the opportunity to profit from a rise
in the market price of the underlying shares with a resulting dilution in the
interest of the Company's other shareholders. The terms on which the Company
could obtain additional capital during the life of the Representatives' Warrant
may be adversely affected because the

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holders of the Representatives' Warrant might be expected to exercise them at a
time when the Company would otherwise be able to obtain comparable additional
capital in a new offering of securities at a price per share greater than the
exercise price of the Representatives' Warrant. Additionally, in connection with
the Stevens Merger, the Company will issue and register simultaneously with this
Offering warrants identical to the Warrants offered hereby exercisable for
250,000 shares of Common Stock. The Company will also issue to the Company's
President and register simultaneously with this Offering warrants identical to
the Warrants offered hereby exercisable for 25,000 shares of Common Stock.

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES

Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Immediately prior to this Offering, there were
approximately 100 record owners of the Company's Common Stock. The Company
anticipates that after the Offering, the Company will have over 600 beneficial
owners. Although the Common Stock and the Warrants have been approved for
listing on the Boston Stock Exchange and on the Nasdaq SmallCap Market, there
can be no assurance that a regular trading market will develop (or be sustained,
if developed) for the Common Stock or the Warrants upon completion of this
Offering, or that purchasers will be able to resell their Common Stock or
Warrants or otherwise liquidate their investment without considerable delay, if
at all. Recent history relating to the market prices of newly public companies
indicates that, from time to time, there may be significant volatility in their
market price. There can be no assurance that the market price of the Common
Stock or the Warrants will not be volatile as a result of a number of factors,
including the Company's financial results or various matters affecting the stock
market generally.

NO DIVIDENDS

The Company has not declared or paid any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all earnings for
the operation and expansion of its business and does not anticipate paying any
dividends in the foreseeable future. See "Dividend Policy."

FORWARD-LOOKING STATEMENTS

This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. The
actual results of the Company may differ significantly from the results
discussed in such forward-looking statements. Certain factors that might cause
such differences include, but are not limited to, the factors discussed in this
"Risk Factors" section. The safe harbors contained in Section 27A of the
Securities Act and Section 21E of the Securities Act, which apply to certain
forward-looking statements, are not applicable to this Offering.

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THE STEVENS MERGER

On November 11, 1996, the Company entered into an Agreement and Plan of
Merger with The Joseph Stevens Group, Inc. ("Stevens") and its sole shareholder,
The Joseph Stevens Group LLC, which Agreement was amended and restated in its
entirety effective May 30, 1997 (as amended, the "Merger Agreement") and further
amended effective September 8, 1997, October 17, 1997, October 29, 1997 and
December 16, 1997. Stevens provides airline tickets for domestic and
international travel to consumers through its "1-800-FLY-4-LESS"
(1-800-359-4537) toll-free number. Stevens' 50 reservation agents provide
reservations for airline tickets out of its reservation center in San Diego,
California. The principal assets of Stevens are its federally registered service
mark, "1-800-FLY-4-LESS," and the related toll-free telephone number,
"1-800-359-4537," through which customers call its reservation center located in
San Diego, California.

In connection with the Stevens Merger, the Company and Stevens entered into
an Interim Operating Agreement pursuant to which the Company has been operating
Stevens' business effective January 1, 1997, until the closing of the Offering.
In connection therewith, Stevens granted to the Company a license to use its
service mark and toll free number, and the Company leased Stevens' equipment and
reservation center for the period from January 1, 1997, until the Closing. In
anticipation of the consummation of the Stevens Merger, the Company replaced
Stevens' former reservation system with the Company's Turbo SABRE system and the
Company's management has taken over the management of the business previously
conducted by Stevens. Upon consummation of the Offering, the Company's Tampa and
San Diego reservation systems will continue to operate with the Company's Turbo
SABRE system and under the Company's management. See "Business Operations."

The Company entered into the Merger Agreement in order to increase its
market share of the low-airfare business. The Company believes that as a result
of the Stevens Merger, it will acquire a valuable set of easy-to-remember
toll-free numbers and Stevens' successful promotional campaign of providing
approximately 150 newspapers with the lowest-priced airfares for certain
designated routes in exchange for placement of Stevens' name and toll-free
number. Since assuming the operations of Stevens under the Interim Operating
Agreement, the Company has almost tripled the Company's gross revenues, and
increased its gross margins to 15.4% of gross reservations for the nine months
ended September 30, 1997 compared to 12.9% for the nine months ended September
30, 1996.

As a result of the Stevens Merger, and with the eventual phase-out of
Stevens' management, the Company will enjoy significant cost savings by
operating the San Diego and Tampa reservation facilities under the Company's
single management team. Another major benefit from the Stevens Merger will be
the greater ease with which the Company will attain the maximum commissions from
the airlines and SABRE. Under its agreements with SABRE and the airlines whose
tickets it sells, the Company can earn increased levels of commissions depending
upon the Company's overall sales volumes. All the Company's sales, whether
booked through its Tampa or San Diego reservation centers, will be credited to
the Company's consolidated accounts, and will result in the Company achieving
the various milestones faster because of the greater aggregate sales volume.

Pursuant to the Merger Agreement, upon the closing of the Offering, (i)
Stevens will be merged with and into the Company, with the Company as the
surviving corporation, (ii) the Company will issue an aggregate of 383,333
shares of Common Stock to Stevens' sole stockholder, The Joseph Stevens Group,
LLC ("JSG"), in exchange for all of the outstanding capital stock of Stevens
plus such additional shares of Common Stock as may be issued pursuant to
make-whole provisions contained in the Merger Agreement and (iii) the Company
will issue to Stevens' sole stockholder warrants exercisable for 250,000 shares
of Common Stock, which warrants have the same exercise price and are entitled
and subject to the same terms and conditions as the Warrants being offered
hereby, and which Warrants are being registered pursuant to the Registration
Statement of which this Prospectus is a part. The Merger Agreement also provides
for the escrow of the Company's cash in the amount of $46,665 and the issuance
by the Company of a promissory note in the amount of $1,578,335 payable at the
Closing. Upon consummation of this Offering, such cash and promissory note will
be released to the sole shareholder of Stevens. Pursuant to the Merger Agreement
and in consideration for Steven's Agreement to extend the closing date of the
Stevens Merger, the Company has paid

16
<PAGE> 17

$121,000 to Stevens and agreed to pay $55,000 at the Closing. Under the Merger
Agreement, Stevens' shareholder has a right exercisable for 120 days after the
Closing to require the Company to purchase certain additional assets for
$150,000. The Merger Agreement also provides that if on the second anniversary
of the date of the Closing the value of the portion of the 383,333 shares issued
to the Stevens' shareholder, then held by the Stevens' shareholder, together
with the fair market value of any consideration received in exchange for the
shares no longer held by the Stevens' shareholder, is less than $2,571,429, the
Company shall issue to the Stevens' shareholder such number of shares of the
Company's Common Stock, based upon its then bid price, as is necessary to
make-up any such deficiency. The Merger Agreement provides that Stevens will
have no debt or obligations as of the closing of the Stevens Merger other than
certain agreed upon ordinary course obligations and a promissory note (the "JSG
Note") not to exceed $1,578,355 payable to JSG. The principal balance of the JSG
Note will be deducted from and reduce the principal balance of the $1,578,335
note deliverable by the Company. Further, the principals of JSG have agreed to
indemnify the Company against all liabilities of Stevens other than the agreed
upon ordinary course liabilities.

The sole stockholder of Stevens has agreed, with respect to 300,000 of the
383,333 shares to be received pursuant to the Merger Agreement, that none of
such shares will be sold over-the-counter or over a public exchange within 30
days of the closing of the Stevens Merger; that during the following eleven
months it may publicly sell no more than 4,546 shares per month (with any unsold
allowances carried forward to future months); and that during the following
twelve months it may publicly sell no more than 20,833 shares per month (with
any unsold allowances carried forward to future months). The sole stockholder of
Stevens has agreed with respect to the remaining 83,333 shares to be received
pursuant to the Merger Agreement, that none of such shares will be sold within
90 days of the Closing Date and that during the following seven months it may
sell no more than 11,905 shares per month (with any unsold allowance carried
forward to future months).

The equity members of JSG are Joseph Elizondo, Steve Rohrlick and Western
Horizons, Ltd., who are owners, respectively, of 44.3%, 44.3% and 11.4%,
respectively, of the equity interest in JSG. Joseph Stevens & Company, Inc., the
investment banking firm at which the Chairman of the Company's Board of
Directors, Michael Gaggi, was a senior vice president, is not affiliated with or
related to Stevens, JSG or any of the equity members of JSG.

17
<PAGE> 18

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock and Warrants offered hereby (assuming an initial public offering price of
$5.00 per Share and $.125 per Warrant) are estimated to be approximately
$5,233,125 (approximately $6,158,044 million if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. The Company
intends to use the net proceeds of the Offering as follows:

<TABLE>
<CAPTION>
PERCENT OF
USE DOLLAR AMOUNT NET PROCEEDS
--- ------------- ------------
<S> <C> <C>
Repay note issued in connection with the Stevens Merger... 1,578,000 30.15%
Pay $55,000 extension fee in connection with the Stevens
Merger.................................................. 55,000 1.05%
Repay the Short-Term Note................................. 160,000 3.06%
Training reservation agents............................... 1,000,000 19.11%
Advertising............................................... 500,000 9.55%
Property and Equipment.................................... 250,000 4.78%
Working Capital........................................... 1,690,125 32.30%
</TABLE>

Approximately $1,578,000 of the net proceeds will be used to retire the
Company's promissory note issued to the sole shareholder of Stevens in
connection with the Stevens Merger, bearing interest at the prime rate reported
in The Wall Street Journal as the base rate on corporate loans posted by at
least 75% of the 30 largest banks in the United States, and the principal and
accrued and unpaid interest of which is payable on the 20th day after the
Closing.

$55,000 of the net proceeds will be used to pay Stevens an extension fee.
See "The Stevens Merger."

Approximately $160,000 of the net proceeds will be used to retire the
Company's short-term promissory notes (the "Short-Term Note") to Jerry Dowell,
who extended loans to the Company in December 1997 and January 1998, and which
notes bear interest at the rate of twelve percent (12%) per annum, and are
payable (along with a borrowing fee) at Closing.

Approximately $1,000,000 of the net proceeds will be used to support the
Company's training program for reservation agents. Approximately $500,000 of the
net proceeds will be used for advertising and marketing purposes. The Company
expects that with the proceeds of this Offering it will begin to expand its
marketing programs beyond Yellow Pages Directories into selected print and media
outlets.

Approximately $250,000 of the net proceeds will be used to purchase
property and equipment. Included in such amounts are $90,000 to purchase the
telephone switch in the San Diego facilities, which the Company currently
leases, and $60,000 to purchase a voice-mail system.

The Company expects to use the approximately $1,690,125 balance of the net
proceeds for working capital and general corporate purposes. See "Risk
Factors -- Use of Proceeds."

Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-terms
interest-bearing investments. The Company has no current plans for the use of
such proceeds as would be received from the exercise of the Warrants offered
hereby.

DIVIDEND POLICY

To date, the Company has neither declared nor paid any dividends on its
Common Stock nor does the Company anticipate that such dividends will be paid in
the foreseeable future. Rather, the Company intends to retain any earnings to
finance the growth and development of its business. Any payment of cash
dividends on its Common Stock in the future will be dependent, among other
things, upon the Company's earnings, financial condition, capital requirements
and other factors which the Board of Directors deems relevant.

18
<PAGE> 19

CAPITALIZATION

The following table sets forth (i) the capitalization of the Company at
September 30, 1997, (ii) the Pro Forma capitalization of the Company as of such
date after giving effect to the Stevens Merger, and (iii) the Pro Forma
capitalization of the Company as of such date after giving effect to the Stevens
Merger and the sale by the Company of 1,350,000 shares of Common Stock and
2,700,000 Warrants offered hereby at an assumed initial public offering price of
$5.00 per share of Common Stock and $0.125 per Warrant (after deduction of the
underwriting discount and estimated offering expenses) and the application of
the net proceeds as described under "Use of Proceeds." This table gives no
effect to the issuance of the Short-Term Note and receipts of the proceeds
therefrom. This table should be read in conjunction with Financial Statements of
the Company, the Predecessor Business and Stevens, including notes thereto,
included elsewhere herein.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------
PRO FORMA
PRO AS
ACTUAL(1) FORMA(2) ADJUSTED(3)
----------- ----------- -----------
<S> <C> <C> <C>
Current Maturities of long term debt................ $ 280,750 $ 1,783,750 $ 280,750
Long-term debt...................................... 30,000 30,000 30,000
----------- ----------- -----------
310,750 1,813,750 310,750
----------- ----------- -----------
Preferred stock -- $100.00 par value; 400 shares
authorized, none issued or outstanding............ -- -- --
Common stock(4) -- $.01 par value; 10,000,000 shares
authorized, 5,959,709 shares issued and
outstanding, 6,343,042 shares issued and
outstanding Pro Forma, and 7,693,042 shares
outstanding Pro Forma, As Adjusted................ 59,597 63,430 76,930
Additional Paid-In Capital.......................... 4,997,424 6,910,256 12,129,881
Stock Subscriptions Receivable...................... (23,547) (23,547) (23,547)(5)
Retained Deficit.................................... (3,567,132) (3,567,132) (3,567,132)
----------- ----------- -----------
Total Stockholders' Equity................ 1,466,342 3,383,007 8,616,132
----------- ----------- -----------
Total Capitalization...................... $ 1,777,092 $ 5,196,757 $ 8,926,882
=========== =========== ===========
</TABLE>

- ---------------

(1) Reflects the actual short-term and long-term indebtedness and capitalization
of the Company without giving effect to the Stevens Merger or the Offering
contemplated hereby.

(2) Reflects the pro forma short-term and long-term indebtedness and
capitalization of the Company after giving effect to the consummation of the
Stevens Merger as if it occurred on September 30, 1997.

(3) Reflects the pro forma short-term and long-term indebtedness and
capitalization of the Company after giving effect to the Stevens Merger as
adjusted to give effect to the consummation of the Offering and the
application of the estimated net proceeds as described under "Use of
Proceeds."

(4) Excludes (i) 250,000 shares issuable pursuant to warrants identical to those
offered hereby exercisable for 250,000 shares of Common Stock issuable in
connection with the Stevens Merger, (ii) 100,000 shares issuable upon
exercise of warrants granted to one of the Company's lenders, (iii) 87,500
shares of Common Stock issuable upon exercise of stock options granted
pursuant to the Company's 1997 Stock Option Plan, (iv) 600,000 shares of
Common Stock issuable upon exercise of options granted or to be granted to
directors and a former director of the Company, (v) 2,700,000 shares of
Common Stock issuable upon the exercise of the Warrants offered hereby, (vi)
405,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrant and the Underlying Warrants therein and (vii)
25,000 shares issuable upon exercise of warrants, identical to those offered
hereby, to be granted to the Company's President upon closing of this
Offering.

(5) The amounts set forth as Stock Subscriptions Receivable were paid subsequent
to September 30, 1997.

19
<PAGE> 20

DILUTION

The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share after this
Offering constitutes the dilution to investors in this Offering. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock.

At September 30, 1997, the pro forma net tangible book value of the Company
was $(1,589,439) or $(.25) per share, after giving effect to the consummation of
the Stevens Merger and the issuance of 383,333 shares of Common Stock in
connection therewith. Without taking into account any changes in net tangible
book value attributable to operations after September 30, 1997, other than the
issuance and sale by the Company of 1,350,000 shares of Common Stock offered
hereby at the public offering price of $5.00 per share and 2,700,000 Warrants
offered hereby at the public offering price of $.125 per Warrant, and the
application of the net proceeds as described under "Use of Proceeds," the pro
forma net tangible book value of the Company as of September 30, 1997 would have
been $4,252,344, or $.55 per share. This represents an immediate increase in net
tangible book value of $.80 per share to the existing shareholders and an
immediate dilution of $4.45 per share to new investors (89% of the initial
public offering price per share of Common Stock). The following table
illustrates this dilution, on a per share basis:

<TABLE>
<S> <C> <C>
Initial public offering price of Common Stock............... $5.00
Net tangible book value as of September 30, 1997............ $(.09)
Decrease in pro forma net tangible book value after giving
effect of Steven Merger................................... (.16)
Increase in net tangible book value attributable to new
investors................................................. .80
Pro forma net tangible book value after offering............ .55
-----
Total dilution to new investors................... $4.45
=====
</TABLE>

If the Representatives' over-allotment option is exercised in full, the pro
forma net tangible book value of the Company as of September 30, 1997 will be
$5,177,263, or $.65 per share. This represents an immediate increase in net
tangible book value of $.90 per share to the existing shareholders and an
immediate dilution of $4.35 per share to new investors.

The following table summarizes, as of September 30, 1997, the total number
of shares of Common Stock purchased from the Company, the aggregate
consideration paid and the average price per share paid by the existing
shareholders and the new investors.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders...................... 6,343,042 82.5% 2,925,000 30.2% .46
New Investors.............................. 1,350,000 17.5% 6,750,000 69.8% $5.00
--------- ----- ---------- -----
Total............................ 7,693,042 100% $9,675,000 100% $1.26
========= ===== ========== =====
</TABLE>

- ---------------

(1) The computation in both of the foregoing tables assume no exercise of the
Representatives' Warrant. See "Description of Securities."

If the Underwriters' over-allotment option is exercised in full, the new
investors will have paid $7,762,500 for 1,552,500 shares of Common Stock,
representing 72.6% of the total consideration for 19.7% of the total number of
shares outstanding.

20
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the financial condition and
results of operations of the Company and should be read in conjunction with the
financial statements of the Company and related notes thereto included elsewhere
in this Prospectus.

OVERVIEW

The Company operates as a telemarketing travel agency, providing air
transportation reservation services for domestic and international travel to
customers through its easy to remember, toll-free numbers. The Company strives
to provide its customers with the lowest-priced airfare available for a
particular travel route at the time of reservation by utilizing the SABRE travel
reservation system.

The Company was formed in November 1995 to acquire certain assets of and
assume certain liabilities of 1-800-Low Airfare, Inc. (the "Predecessor
Business"). The acquisition was consummated on December 1, 1995. The Predecessor
Business had commenced operations in 1993. To expand its operations, in November
1996 the Company entered into a Merger Agreement with Stevens and its sole
shareholder. Stevens is one of the largest independent travel agencies in the
United States specializing in the telemarketing of airline tickets. Pursuant to
the Merger Agreement, simultaneously with the closing of this Offering, Stevens
will be merged with and into the Company, with the Company as the surviving
corporation.

The Company's operating revenues presently consist, and for the immediate
future will continue to consist, principally of (i) commissions on air travel
tickets; (ii) override commissions on air travel tickets booked on airlines with
which the Company has override agreements; (iii) segment incentives under the
Company's agreement with SABRE; (iv) co-op promotions with suppliers of travel
related products and services; and (v) service fees charged to customers.

The Company's revenues are a function of the number and price of the
tickets its sells and the percentage of the price of such tickets it retains as
commissions and override commissions, as well as on the service charge imposed
on customers. Although the Company entered into its first override agreement in
December 1995, it only began to achieve the volume necessary to benefit from
these agreements in the third quarter of 1996. The Company entered into an
agreement with the TWA Discounter on March 1, 1996. As a result of its override
agreements and its agreement with the TWA Discounter, the Company is able to
charge its customers a $10 or $20 service charge, depending on the price of the
ticket, while still offering low priced tickets. The Company only began to
impose this service charge in January 1997.

The Company anticipates that as the volume of tickets sold increases and
the proportion of tickets sold which are subject to an override agreement
increases, the percentage of the price of the tickets sold retained by the
Company will increase. Set forth below for the periods indicated are the gross
dollar amounts of reservations booked, revenues and revenues as a percentage of
reservations, the gross dollar amount of expenses, expenses as a percentage of
revenues and net loss as a percentage of revenues.
<TABLE>
<CAPTION>
ELEVEN MONTHS MONTH
ENDED ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31, 1995 DECEMBER 31,
1995 1995 TOTAL % 1996 %
-------------- ------------ ----------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Gross Reservations... $ 9,647,090 $1,609,426 $11,256,516 -- $23,590,782 --
=========== ========== =========== ===========
Revenues (including
override)........... 1,090,938 133,970 1,224,908 10.9%* 3,235,777 13.7%*
----------- ---------- ----------- -----------
OPERATING EXPENSES...
Employee Costs...... 1,115,403 175,604 1,291,007 105.4 2,490,770 77.0
Telephone........... 392,869 14,527 407,396 33.3 702,870 21.7
Ticket Delivery..... 138,798 17,896 156,694 12.8 407,579 12.6
Advertising......... 333,520 437 333,957 27.3 137,223 4.2
General and
Administrative.... 1,156,777 53,869 1,210,646 98.8** 1,768,058 54.7**
Interest............ 168,857 4,017 172,874 14.1 1,114,298 34.4
----------- ---------- ----------- ----- ----------- -----
Total Expenses.. 3,306,224 266,350 3,572,574 291.7 6,620,798 204.6
----------- ---------- ----------- ----- ----------- -----
Other Income......... 41,959 1,782 43,741 3.6 12,610 0.4
----------- ---------- ----------- ----- ----------- -----
Net (Loss)........... $(2,173,327) $ (130,598) $(2,303,925) 188.1% $(3,372,411) 104.2%
=========== ========== =========== ===== =========== =====

NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1996 % 1997 %
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Gross Reservations... $16,958,158 -- $39,152,651 --
=========== ===========
Revenues (including
override)........... 2,189,881 12.9% 6,016,416 15.4%*
----------- -----------
OPERATING EXPENSES... **
Employee Costs...... 1,945,469 88.8 2,905,981 48.3
Telephone........... 451,673 20.6 787,488 13.1
Ticket Delivery..... 215,810 9.9 523,789 8.7
Advertising......... 87,244 4.0 178,180 3.0
General and
Administrative.... 959,526 43.8 1,605,833 26.6
Interest............ 897,070 41.0 83,994 1.4
----------- ----- ----------- -----
Total Expenses.. 4,556,792 208.1 6,085,265 101.1
----------- ----- ----------- -----
Other Income......... 69,554 3.2 4,726 --
----------- ----- ----------- -----
Net (Loss)........... $(2,297,357) 104.9% $ (64,123) 1.1%
=========== ===== =========== =====
</TABLE>

- ---------------

* Revenues as a percentage of gross reservations.

** Expense as a percentage of revenues.

21
<PAGE> 22

The Company's operating expenses include primarily those items necessary to
advertise its services, maintain and staff its travel reservation centers,
including payroll, commissions and benefits; telephone; general and
administrative expenses, including rent and computer maintenance fees; and, to
date, interest, fees and expenses associated with the Company's financing
activities.

RESULTS OF OPERATIONS

For purposes of the discussion below, the results of operations of the
Predecessor Business for the period from January 1, 1995, through November 30,
1995, have been combined with the results of operation for the Company for the
month of December 1995.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Revenues for the year ended December 31, 1996 ("Fiscal '96") increased 164%
to $3,235,777 compared to $1,224,908 for the year ended December 31, 1995
("Fiscal '95"). The increased revenues reflect the growing consumer awareness of
the services provided by the Company and an increase in the volume of calls
handled as a result of the growth in the number of the Company's telephone
reservation agents from approximately 30 as of December 31, 1995, to 76 as of
December 31, 1996. As a percentage of gross reservations, revenues increased
from 10.9% of gross reservations during 1995 to 13.7% of gross reservations
during 1996. Revenues for the year ended December 31, 1996, includes cash
promotional payments of $350,000 received from Sabre during 1996. Such payments
are based upon growth in the number of terminals the Company has in service and
the number of segments booked by the Company during each measuring period.

Operating expenses for Fiscal '96 increased 85% to $6,620,798 compared to
$3,572,574 for Fiscal '95. The increase in operating expenses resulted primarily
from an increase in the Company's payroll, commissions and employee benefits
expenses, which increased 93% to $2,490,770 in Fiscal '96 from $1,291,007 in
Fiscal '95. Consistent with the increase in the volume of tickets sold by the
Company, the Company also recorded increases in its telephone and ticket
delivery expenses, though these increases were not proportional with the
increase in the Company's volume. Also contributing significantly to the
increase in the Company's operating expenses was an increase in the Company's
interest expense by 544% to $1,114,298 in Fiscal '96 from $172,874 for Fiscal
'95. A portion ($1,047,093) of the interest expense incurred during Fiscal '96
represents shares issued as compensation for loans made to the Company. Despite
the increase in operating expenses from Fiscal '95 to Fiscal '96, as reflected
in the table on the preceding page, total operating expenses as a percentage of
revenues decreased from Fiscal '95 to Fiscal '96. Further, with the exception of
interest expense, which increased as a result of the Company's need to fund its
growth and as a result of shares issued as a result of the Company's failure to
timely repay outstanding loans, each of the Company's expense items decreased as
a percentage of revenues from Fiscal '95 to Fiscal '96. This decrease reflects
the fact that although certain of the Company's expenses may increase with
revenues, others remain constant over a range of revenues and those which
increase generally do so at a rate less than the rate of increase in revenues.

Because of the financial condition of the Company when it commenced
operations, the Company was unable to attract capital, debt or equity, on
favorable terms. In connection with its acquisition of certain assets of the
Predecessor Business, the Company assumed the debt obligations of the
Predecessor Business to Mr. Trebatch, Mr. Cantor and Dr. Colon. In addition,
after it commenced operations the Company borrowed additional monies from Mr.
Trebatch, Mr. Cantor and Dr. Colon. The terms of such agreements were onerous,
providing for increases in the principal amounts of the loans and the issuance
of substantial numbers of shares of Common Stock to the lenders if the Company
were not to timely pay the amounts due. As a result of such provisions, assuming
repayment of the amounts due Mr. Trebatch out of the proceeds of this Offering
and valuing any shares issued at amounts reflecting their value at the time of
issuance (default), the effective rates of interest received by Mr. Trebatch,
Mr. Cantor and Dr. Colon were 135%, 886% and 312%, respectively.

During 1996 the Company's operating loss was $3,372,411 (including non-cash
charges of $1,811,093 resulting from shares issued to lenders, consultants,
employees and the Company's landlord), as compared to an operating loss of
$2,303,925 for Fiscal '95. The consistency of the Company's operating loss
reflects the fact that while the volume of business increased, the Company's
operating expenses, inclusive of interest charges, increased by an approximately
equal amount.

22
<PAGE> 23

Liquidity and Capital Resources

The Company commenced operations in December 1995 upon the acquisition of
certain assets of the Predecessor Business for $1,407,008 of which $10,000 was
paid in cash, $90,000 was paid by the delivery of the Company's Promissory Note;
$720,480 was satisfied through the issuance of 600,400 shares of the Company's
Common Stock and $586,528 was satisfied through the assumption of certain
liabilities of the Predecessor Business. Of the 600,400 Shares issued, 300,000
shares were to be issued to creditors of the Predecessor Business which elected
to convert their claims against the Predecessor Business into stock at the rate
of $10.00 per share. Pursuant to this Agreement, during Fiscal '96 the Company
issued 153,934 shares of Common Stock to creditors of the Predecessor Business
and 146,066 shares of its Common Stock to the Predecessor Business.

To date the Company has financed its operations from capital contributions,
net of related expenses, in the amount of $2,455,902; loans in the amount of
$310,750; and through services provided by certain vendors to be paid out of
future revenues. The Company, including its Predecessor, used $1,293,714 in
operating activities in Fiscal '95 and $1,095,150 for operating activities in
Fiscal '96. The decrease in cash used in operating activities reflects the fact
that a significant portion of the Company's expenses, particularly interest,
incurred during Fiscal '96 was satisfied through the issuance of shares of the
Company's Common Stock. The Company anticipates that it will continue to use
cash in its operating activities for the immediate future.

During Fiscal '96 the Company's capital expenditures were approximately
$371,000 primarily for leasehold improvements. Because the Company's computers
and telephone switching equipment are already in place, the Company does not
anticipate substantial capital expenditures during the current fiscal year.

Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996

Revenue for the nine months ended September 30, 1997 increased 175% to
$6,016,416 compared to $2,189,881 for the nine months ended September 30, 1996.
The increase in revenue was the direct result of the increase in gross
reservations booked of 131% in the nine months ended September 30, 1997
($39,152,651) as compared to the nine months ended September 30, 1996
($16,958,158). Approximately $15,661,000 of the gross reservation increase and
$2,707,000 of the increase in revenues is attributable to the assumption of the
operations of Stevens in January 1997. The Company believes that as a result of
the Stevens Merger, the Company has significantly increased its market share of
the low-airfare business. In addition, it has acquired a valuable set of
easy-to-remember toll-free numbers and a successful promotional campaign in
which the Company provides approximately 150 newspapers with the lowest-priced
airfares for certain designated route in exchange for placement of Stevens' name
and toll-free number. In addition to the increase in revenue applicable to
increased gross reservations, the commissions and fees earned increased to 15.4%
of gross reservations for the nine months ended September 30, 1997 compared to
12.9% for the nine months ended September 30, 1996. This 19% increase in
commissions and fee rates is the result of volume incentives provided by the
airlines, which the Company will be able to take advantage of more quickly as a
result of the greater overall sales volumes generated by the Company's two
reservation centers. Revenues for both the nine months ended September 30, 1997,
and the nine months ended September 30, 1996, reflect cash promotional payments
of $100,000 received from Sabre in May 1996 and May 1997.

Operating expenses for the nine months ended September 30, 1997 increased
34% to $6,085,265 compared to $4,556,792 for the nine months ended September 30,
1996. Operating expenses did not increase proportionate to revenues due to the
fact that many expenses remain constant over broad ranges of revenues (i.e.
office rent, utilities, management wages, etc.) and a new agreement effective
September 1996 with its telephone service provider helped the Company control
the telephone expense. Pursuant to the new four-year agreement, the telephone
service provider granted the Company a credit of $15,000 towards installation
charges and an additional $180,000 for general charges in the fifth month
following the initiation of service (subject to forfeiture in the event the
Company discontinues service in the second year of the agreement) and will grant
the Company a credit of $180,000 for general charges in the 17th month following
initiation of service. The credits are being recognized as reductions in
telephone expense ratably over the forty-eight (48) month term of the contract.
Since the execution and delivery of the Merger Agreement in November 1996, the
Company's management commenced managing Stevens and replaced Stevens' prior
reservation system with a new SABRE system. Upon consummation of the Stevens
Merger, Stevens' prior management will be phased out, and the Company
anticipates significant cost savings from consolidating operations under one

23
<PAGE> 24

management team. Interest expense declined by $813,076 in the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996, due
to the fact that the Company issued a substantial number of shares of its Common
Stock as a result of its failure to timely repay amounts due certain lenders in
1996 and no such shares were issued in 1997.

Despite the increase in operating expenses from the first nine months of
'96 to the first nine months of '97, as reflected in the table above, total
operating expenses as a percentage of revenues decreased from 208.1% of revenues
during the first nine months of '96 to 100.1% of revenues during the first nine
months of '97. This decrease is largely attributable to the fact that the
Company's revenues increased by 175% during this period while expenses increased
by a significantly lesser percentage.

During the nine months ended September 30, 1997 the Company operating loss
declined to $64,123 from $2,297,357 for the nine months ended September 30,
1996. This decline in the operating loss was the result of revenue increasing
faster than related expenses plus the decline in the interest expense.

Liquidity and Capital Resources

The Company's operations provided $166,426 of cash during the nine months
ended September 30, 1997 and used $1,303,428 of cash during the nine months
ended September 30, 1996. The 1996 operating activity use of cash was financed
primarily through sales of common stock from which the Company realized proceeds
of $1,948,469. In subsequent quarters of 1996 the Company raised an additional
$532,935 which was used to finance additional use of cash in operating
activities for the last quarter of 1996 and the first three quarters of 1997. In
December 1997 and January 1998, the Company borrowed an aggregate of $150,000 as
a short-term loan, with interest thereon accruing at 12%. Such loan is secured
by a lien on the Company's assets. Such loan (along with interest thereon and a
borrowing fee) is to be repaid upon the Closing and the lien on the Company's
assets will be lifted upon such repayment.

During the first nine months of 1997 the Company's capital expenditures
were $46,703. Because the Company's computers and telephone switching equipment
are already in place, the Company does not anticipate substantial capital
expenditures in the immediate future beyond those reflected in "Use of Proceeds"
and in the following paragraph.

The Company anticipates that approximately $1,690,125 of the net proceeds
of this Offering will be available to be used as working capital. In addition,
approximately $1,000,000 of such net proceeds will be used to train a sufficient
number of people to add approximately 200 additional reservation agents over the
next 24 months, which the Company believes will enable it to increase the number
of calls answered each day by approximately 7,000 and, consequently, to increase
the Company's revenues. The Company will use approximately $250,000 of the net
proceeds to purchase property and equipment, including $90,000 to purchase the
telephone switch in the San Diego facilities, which the Company currently
leases, and $60,000 to purchase a voice-mail system. In addition the Company
intends to use $500,000 to expand its marketing activities to increase consumer
awareness of its services.

On a pro forma as adjusted basis after giving effect to the Stevens Merger,
the Offering contemplated hereby and the application of the proceeds of this
Offering as set forth under "Use of Proceeds", the Company will have intangible
assets of approximately $4,363,788, including goodwill of $3,975,567. The amount
carried on the Company's Financial Statements as Goodwill represents, primarily,
the amounts paid or the value of the shares of Common Stock issued in connection
with the acquisition of the assets of the Predecessor Business and the Stevens
Merger, in excess of the net fair value of the assets acquired. The ability of
the Company to realize the value of such Goodwill is a function of its ability
to operate profitably the business conducted with the assets acquired. The
Company periodically reviews the amount of Goodwill included in its Financial
Statements to determine whether it is appropriate to write-down all or any
portion of such amount. Any decision to write-down substantially the amount of
Goodwill on the Company's Financial Statements would result in a charge against
the Company's earnings.

If the Company's revenues continue to increase as currently anticipated,
the Company should not require any additional capital beyond that provided by
this Offering to achieve its current business plans. If, however, the Company
were to seek to expand its operations through acquisitions, the Company could
require capital beyond that provided by this Offering. There can be no assurance
that such capital will be available, or, if available, on terms acceptable to
the Company.

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BUSINESS

Unless otherwise noted or the context otherwise requires, references in
this Prospectus to the Company are to 800 Travel Systems, Inc. and to the
businesses previously conducted by its predecessor, 1-800 Low-Air Fare, Inc. and
The Joseph Stevens Group, Inc.

The Company is among the 100 largest independent travel agencies in the
United States. The Company provides low-priced airline tickets for domestic and
international travel to its customers through its easy-to-remember, toll-free
numbers "1-800-LOW-AIR-FARE" (1-800-569-2473) and "1-800-FLY-4-LESS"
(1-800-359-4537). The Company has approximately 140 reservation agents and
operates 365 days a year out of the Company's reservation centers in Tampa,
Florida and San Diego, California. The Company strives to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of reservation by utilizing the SABRE travel reservation system. The SABRE
system maintains approximately 45 million airfares, including those of all major
U.S. and international commercial airlines, and is updated throughout the day to
reflect the airlines' latest ticketing information. The Company estimates it
receives an average of 12,500 calls per day (including repeat calls from callers
unable to be serviced or calling to confirm reservations) at its reservation
centers, of which the Company has the current capacity to answer only
approximately 4,800. The Company has increased the number of its reservation
agents from 30 at the end of 1995 to approximately 140 presently. The Company
intends to use approximately $1 million of the proceeds of this Offering to
expedite the training of additional reservation agents. The Company already has
the equipment and infrastructure necessary to answer all the calls it is
currently unable to answer.

The Company markets its services primarily by advertising in approximately
260 Yellow Pages directories covering a total population of over 128 million
people in those standard metropolitan areas in the continental United States
("SMA's") with populations whose general travel profiles are attractive to the
Company. The Company also maintains a home page on the World Wide Web
(www.lowairfare.com) which enables its customers to access its customized Turbo
SABRE system through their personal computers.

INDUSTRY OVERVIEW

The travel industry is one of the world's largest industries, with $3.4
trillion in sales in 1994 according to the World Travel Organization (the
"WTO"). According to the Travel Weekly 1996 U.S. travel agency survey (the
"Travel Weekly Survey"), revenues for U.S. travel agencies in 1995 exceeded $100
billion, representing an increase of almost 100% since 1985 and 9% since 1993.
The Air Transport Association (the "ATA") projects that 800 million U.S.
passengers will purchase airline tickets in the year 2005. The Company believes
that approximately 60% of the U.S. market for air travel is booked through
travel agencies rather than directly through air carriers.

The U.S. travel agency industry is a highly fragmented industry comprised
of numerous small agencies, but tending towards large volume agencies, according
to the Travel Weekly Survey. In contrast to 1985, when small agencies (those
reporting between $1 million and $5 million in annual sales) were responsible
for 62% of all U.S. travel agency revenues, in 1995 such agencies were
responsible for only 41% of all U.S. travel agency revenues.

The Company believes that only one other travel agency operates in a manner
similar to the Company by emphasizing low-cost airfare, nationally advertising
toll-free telephone numbers that spell out their respective advertising slogans
and processing calls on such numbers at centralized reservation centers. The
Company believes that operating in such manner distinguishes the Company and its
competitor from other travel agencies as "telemarketing travel companies."

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OPERATING STRATEGY

The Company's operating strategy is to (i) strive to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of reservation on those airlines whose tickets the Company sells, (ii)
focus on consumer air travel, which the Company believes is the most profitable
segment of the travel industry, (iii) provide convenient, quick service to its
customers, (iv) maintain low operating costs by utilizing only two operating
facilities, (v) use state-of-the-art technology to maximize operating
efficiencies, (vi) constantly review and update its relationships with major
airlines and SABRE to obtain favorable commission structures, and (vii) provide
incentives to its sales force through a performance-based compensation
structure. The Company believes that this strategy distinguishes it from most
travel agencies in the United States, and that significant internal growth
opportunities exist as (x) customers' demand for low-price air travel remains
unsatisfied through traditional sources and (y) technological developments in
the area of information processing enable increasingly efficient global
distribution of travel information.

Low-Priced Airfare on Major Airlines

The Company strives to provide its customers with the lowest-priced airfare
available for a particular travel route at the time of the reservation on those
airlines whose tickets the Company sells (which includes most major U.S. and
international airlines), using the comprehensive ticket information available on
its customized Turbo SABRE system. The Company's SABRE system provides the
operating reservation agent, within two or three seconds of a request for a
particular route, up to 900 ticket options ranked in order of price. The
reservation agent can then offer ticket options in ascending order of price
until the customer chooses a suitable carrier and departure time. In contrast,
airlines typically quote only their own fares and often quote highest fares
first to avoid selling the lowest-priced tickets. The Company believes that most
travel agents do not offer customers the lowest-priced airfare available because
they either lack the technical capability or prefer to sell more expensive
tickets and earn larger commissions. In contrast, the Company's operating
strategy is based on generating large sales volume rather than on high margins
on individual tickets. The Company's customers generally have one
objective -- lowest-priced airfares. As a result, the Company's strategy allows
it to satisfy its customers' demands for low airfares while obtaining higher
commissions and additional incentives for higher volumes. The Company believes
that its ability to provide low-priced airfare on the airlines whose tickets it
sells (which is almost always lower than the lowest fare published by that
airline) provides a distinct competitive advantage in attracting and retaining
customers.

Sell Tickets of Almost All Major Airlines

The Company sells tickets for a large number of major U.S. and
international airlines. The Company is authorized to sell tickets on behalf of
all major domestic airlines including Continental, United, Northwest, TWA,
American, Alaska, Delta, Midway, Southwest and America West, but not U.S.
Airways. To be authorized to sell tickets on behalf of U.S. Airways a travel
agent that is not a public company must submit financial statements of its
principal shareholders, which the Company is currently unable to do. The Company
anticipates that shortly after the closing of this Offering it will become
authorized to sell tickets of U.S. Airways.

Because of Delta Airlines' pricing and commission policies, the volume of
Delta tickets sold by the Company is not commensurate with Delta's position in
the airline industry. The Company also does not sell tickets on smaller
airlines, whose airfares and commission structures do not enable the Company to
generate a profit on such sales. Where the fares of such airlines are available
on the Company's SABRE system at a lower price, the Company's reservation agents
direct the callers directly to such airlines. The Company constantly monitors
and periodically revisits its existing relationships with individual airlines,
and attempts to establish new relationships with other airlines, as part of its
general strategy of keeping abreast of market conditions and industry trends.

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Focus on Consumer Air Travel

The Company believes that consumer air travel is the most profitable
segment of the travel industry, and that it can compete effectively in this
segment because of its high technology, telemarketing approach to the consumer
air travel business and the resulting efficiencies. The Company considers the
consumer market to include any person who pays for his or her own travel
expense, regardless of the purpose of the travel, as opposed to business
travelers whose employers pay for their travel expenses. However, the Company
does sell to certain customers who purchase air travel for business purposes
which is paid for by their employers.

The Company believes that its reservation agents require substantially less
time to book reservations because (i) all the information they need is
immediately available and the necessary steps can be conducted on their computer
screens, and (ii) the Company's services are focused on air travel, which does
not require research or follow-up work and can be completed in one phone call,
in contrast to the more time-consuming arrangements for hotel and car-rental
reservations. Consequently, the Company believes its average reservation agent
can book an average of approximately $250 in travel plans (i.e. the gross ticket
price booked) for customers per hour, compared to the industry average of $147
gross bookings per hour. The Company strives to increase this average by
rewarding reservation agents with commissions for weekly sales in excess of
various levels. In addition, the Company believes that the fact that the
majority of the most inexpensive air travel tickets are non-refundable increases
the profitability of the consumer air travel market. Over 90% of the Company's
ticket sales are non-refundable and, as a result, the value of tickets refunded
each week is less than 1% of all tickets sold.

Convenient Service

The Company believes that a significant factor in a customer's decision to
purchase air travel is the convenience of service. The Company believes that the
convenience of its service compares favorably to that of its competitors because
(i) its reservation agents provide immediate and comprehensive information, and
(ii) if purchased early enough, tickets are delivered the next day. The
Company's telemarketing service, coupled with its delivery of tickets by
next-day courier, eliminates the need for customers to visit a travel agency.
The Company offers one source for the lowest-priced airfare available, thus
eliminating the need for the customer to call several air carriers or travel
agents. In addition, the easy-to-remember "1-800-LOW-AIR-FARE" and
"1-800-FLY-4-LESS" names and associated numbers, "1-800-569-2473" and
"1-800-359-4537" facilitate repeat calls from customers who may call on
subsequent occasions from other locations where the area code may be different
or where they may not have access to a Yellow Pages directory. See "Growth
Strategy -- Internal Growth."

Low Operating Costs

The Company seeks to have the lowest margin of operating costs in the
travel agency industry. The Company minimizes its operating costs by processing
all of its customer reservations and purchases through two centralized
facilities, rather than duplicating its financial and management resources at a
number of locations. Since its customers do not physically visit the Company's
reservation centers in Tampa or San Diego, the Company does not need to
construct and maintain the more expensive locations that traditional travel
agents do. Similarly, the Company does not need to incur the expense of
furnishing its reservation facilities to accommodate customers, but rather
maintains functional reservation centers geared toward maximizing the number of
reservation agents that can operate at any one time. The Company also minimizes
its operating costs by basing its marketing strategy on advertising through
Yellow Pages directories in those SMA's with populations whose general travel
profiles are attractive to the Company, which the Company believes is the most
cost-effective method of advertising available. See "-- Marketing." The Company
also minimizes its costs by contracting for employees at its Tampa reservation
center through a professional employee leasing organization. All of the
Company's workers at the Tampa facility (other than management) are retained on
an hourly basis through such services. The Company is responsible for training
and supervising the job performance of worksite employees. The Company has
determined that it is more economical to contract with employee providers than
to employ such hourly workers itself.

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State-of-the-Art Technology

The Company uses state-of-the-art computer technology available to access
all the major U.S. and international air carriers' routes and fares. Each of the
Company's reservation agents operates a SABRE computer terminal and headset. The
Company has significantly customized the Turbo SABRE system specifically for the
Company's specific purposes and uses. As a result, the Company's reservation
agents have fewer procedures to master and therefore are trained and become
proficient on the Company's reservation system more quickly, thus incurring
lower training expenses. In addition, the skills learned by the reservation
agents on the Company's Turbo SABRE system are not transferable to other travel
agencies, resulting in lower reservation agent turnover.

Review and Update Relationships with Airlines

The Company's management constantly reviews and updates its relationship
with the major airlines and SABRE in order to obtain a favorable commission
structure. The Company believes that as a result of such efforts, the Company
has been able to obtain commission structures that are more favorable than those
obtained by travel agents generally. See "-- Operations; Standard Commissions"
and "--; Override Commissions."

Employee Incentives

The Company's reservation agents are organized into teams of approximately
20 reservation agents under one supervisor. The reservation agents earn a base
salary and commission, each of which is dependent upon the volume of sales
generated by an agent within a moving, historic measuring period. The team
supervisors, in turn, are paid based on the average sales of that supervisor's
team. The Company believes that this performance based compensation structure
enables it to retain and constantly motivate the best-performing reservation
agents.

GROWTH STRATEGY

The Company has a three-point growth strategy:

- Internal Growth.
The Company's Tampa and San Diego reservation centers are currently
operating at less than maximum capacity because the Company can add up to
40 reservation agents a month while maintaining the quality of its customer
service and operating efficiencies. Consequently, of the 12,500 calls per
day (including repeat calls from callers unable to be serviced) the Company
estimates it receives on average at both reservation centers, the Company's
approximately 140 reservation agents currently can answer only an average
of approximately 4,800 calls. As a result, the Company believes it can grow
substantially over the next twenty-four months as it adds additional
personnel. The Company's Tampa and the San Diego facilities can accommodate
a combined total of 1,560 reservation agents working in staggered shifts,
or 520 working at any one time. The Company believes that it can achieve
substantial growth by increasing the number of its reservation agents and
consequently increasing its capacity to process the existing demand by
potential customers who call its toll-free numbers daily.

- Marketing.
The Company has already implemented a marketing strategy of focusing
on advertising in Yellow Pages directories in the largest SMA's. The
Company has advertisements of its "1-800-LOW-AIR-FARE" name and
"1-800-569-2473" toll-free number listed in approximately 260 directories
reaching a population of over 128 million people. The Company has
advertisements of its "1-800-FLY-4-LESS" name and "1-800-359-4537"
toll-free number listed in approximately 160 directories reaching a
population of over 122 million people. The Company intends to continue its
current strategy of advertising in Yellow Pages, but intends to focus on
directories in those SMA's with populations whose general travel profiles
are attractive to the Company. Once the Company's ability to

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satisfy existing customer demand is addressed, the Company anticipates
increasing consumer awareness of its easy-to-use, low-priced airfare
approach to travel reservations through select print and radio advertising
campaigns. See "Business -- Marketing."

- Strategic Acquisitions.
The Company believes that opportunities exist for it to expand its
market share in existing markets through the acquisition of other travel
companies with valuable customer lists and intellectual property. The
Company expects that such acquisitions would involve the purchase of the
relevant names, service marks and telephone numbers, as well as any logos
and other identifying features associated with them. The Stevens Merger is
an example of one such strategic acquisition. See "The Stevens Merger" and
"-- Competition."

SERVICES

The primary service the Company offers to its customers who call its
toll-free numbers or access its Internet home page is a reservation service for
domestic and international flights. The Company strives to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of the reservation on those airlines whose tickets the Company sells. The
Company's Turbo SABRE system is customized to provide to the reservation agent
within two or three seconds up to 900 ticket options, ranked in order of price.
Once tickets are purchased, they are printed at the Company's Tampa reservation
center and delivered by overnight courier to customers.

The Company offers its reservation services through approximately 140
reservation agents and supervisors located at the Company's reservation centers
in Tampa, Florida and San Diego, California. The reservation centers operate 16
hours a day, 365 days a year. Each reservation agent operates a computer
terminal that accesses the SABRE travel reservation and information system. The
Company adjusts the number of reservation agents serving customers on an hourly
basis. At the peak hours of 11:30 a.m. through 4:30 p.m., Eastern time, the
Company has the most reservation agents working. Currently, the average number
of agents working during such peak hours is 66. During the hours of 1:00 a.m.
through 6:00 a.m., Eastern time, the Company needs the least agents and staffs
an average of 28 reservation agents. It is during the peak hours of 11:30 a.m.
through 4:30 p.m. that the Company is not able to answer all of the calls it
receives.

Personalized Service

The Company's customized Turbo SABRE system enables it to retain in its
files individual travel preferences for its customers, such as seating, special
meals and frequent flier numbers, which are automatically displayed when a
customer's identifying information is input. This tailored information program
personalizes the reservation process as well as reduces the time required to
complete each reservation.

Corporate Customers

While the Company's current customers are predominantly individuals and the
Company's operating strategy targets the consumer market, the Company offers
certain services targeted at corporate customers. These services, however, are
designed to be offered during the processing of a single telephone call, as with
calls from individual customers. The Company's Turbo SABRE system enables it to
program "pop-up-windows" specifying, for each corporate customer, its travel
policy, preferred air carrier vendors, specially negotiated rates, handling
instructions and emergency procedures. The "pop-up-window" for each corporate
customer appears on the terminal screen and guides the reservation agent during
the reservation process.

Repeat Customers

The Company believes that repeat customers are key to its ability to grow.
The Company's "1-800-LOW-AIR-FARE" (1-800-569-2473) number has a rate of repeat
customers (meaning customers who purchase at least one more ticket within a
year) of approximately 38%, and the Company's "1-800-FLY-4-LESS"
(1-800-359-4537) number has a repeat customer rate of approximately 50%. The

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Company believes that while customers are initially attracted by the low-priced
airfares made available by the Company, they become repeat customers because of
their satisfaction not only with the prices but also the convenience of being
able to book their reservations on one relatively brief toll-free telephone
call. The Company believes that it can generate internal growth by obtaining an
even larger portion of the travel business of its existing customers and
consequently increasing its repeat customer business.

OPERATIONS

The Company's operations generate revenues principally from (i) the
commissions on air travel tickets, (ii) override commissions on air travel
tickets the Company books on Continental, United, Northwest, TWA, Carnival,
America West, America Trans Air, Trans Brazil, Mexicana and Korean airlines,
(iii) segment incentives under the SABRE contract, (iv) co-op promotions with
other suppliers of travel-related products and services, such as long-distance
telephone companies, car rental companies and hotels, and (v) service fees of
$10 or $20 that it charges per ticket. The Company also earns a $5 shipping and
handling fee (net of expenses) for delivering tickets to its customers.

Standard Commissions

In accordance with industry practice, the Company receives a commission of
approximately 9.25% of the price of full-fare tickets and 11% for excursion
tickets that it sells on air carriers for which the Company is authorized to
sell air travel tickets. The Company is an authorized agent of all air carriers
whose fares are quoted on SABRE, other than U.S. Airways. Most major U.S.
airlines impose caps on such commissions of $25 dollars for one-way air travel
tickets and $50 dollars for round-trip tickets. In 1996, such commissions (which
include commissions for sales through consolidators) accounted for more than 70%
of the Company's gross revenues. See "-- Agreements with Consolidators."

From time to time, most of the major U.S. air carriers informally waive the
commission cap for the Company and other large travel agencies. Such waivers
generally apply to sales of tickets for travel on selected routes and are
granted to provide an incentive to increase sales for those routes. In addition,
the Company obtains higher commissions through the payment of override
commissions in excess of the standard 9.25% and 11% commissions pursuant to
agreements with most of the major U.S. airlines. Due to such override
commissions and waivers of the commission cap and the Company's strategy of
selling tickets on airlines with which it has override commission arrangements,
the Company is rarely subject to the commission cap. See "-- Override
Commissions." The foregoing discussion does not give any effect to the recent
announcements by several major carriers of their intent to reduce the
commissions they pay from 10% to 8%. See "Risk Factors -- Risks Relating to
Airline Commissions."

Override Commissions

The Company has entered into agreements with Continental, United,
Northwest, the TWA Discounter, Carnival, America West, America Trans Air, Trans
Brazil, Mexicana and Korean airlines for the payment of override commissions
above the standard commissions the Company receives. Under such agreements,
additional commissions are generally awarded if the volume of ticket sales
surpasses certain agreed upon thresholds based upon ticket sales as reported by
the Airlines Reporting Corporation (the "ARC"), a corporation owned and
established by the airlines to provide reporting, settlement and related
services in connection with the sale of transportation by travel agencies in the
U.S. Override commissions are generally paid quarterly and, depending upon the
specific agreement with the air carrier, may be paid directly by check from the
air carrier to the Company, by means of net payments by the Company to ARC with
respect to amounts owed to the air carrier, or through ARC by means of a credit
memo in favor of the Company. In 1996, override commissions accounted for
approximately 15% of the Company's gross revenues.

The Stevens Merger will enable the Company to obtain greater override
commissions, since the volume of combined sales of the previously separate
entities will be used to determine whether and when the agreed-to thresholds
have been met.

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Segment Incentives under SABRE Contract

The Company earns additional revenue from SABRE for each segment of air
travel that it sells. A segment of air travel is non-stop air travel between two
destinations. For each segment of air travel it sells, the Company receives $.50
from SABRE. In 1996, SABRE segment incentives accounted for less than 1% of the
Company's gross revenues.

Service Fee; Shipping and Handling

The Company also charges the customer a service fee per airline ticket sold
of $10 for tickets less than $250 and $20 for tickets equal to or greater than
$250. These fees are already calculated into the cost of the ticket when quoted
to the caller. Because of the Company's override commission structure, the price
of the ticket (even inclusive of the service charge) is still generally lower
than the lowest-priced published fare quoted by the airlines. The Company also
earns $5.00 (net of expenses) from the shipping and handling fee it charges to
its customers.

Agreements with Consolidators

The Company also sells air travel tickets offered by consolidators.
Consolidators purchase large number of tickets directly from various air
carriers for resale to the public. When the Company sells such tickets, the
reservation is generally not booked through SABRE or settled through ARC, and
the Company is paid its commission directly from the consolidator. The Company
has entered into an agreement with a consolidator that sells tickets on TWA at a
discount (the "TWA Discounter") pursuant to which it (i) solicits customers to
purchase tickets for air travel on TWA at discounted fares from the TWA
Discounter and (ii) solicits businesses to enter into agreements for the
purchase of air travel on TWA from the TWA Discounter (the "TWA Agreement"). The
TWA Agreement expires in February 1998 and is terminable before such date on 15
days' prior written notice by either party. The Company receives a 15%
commission on each air travel ticket solicited by the Company or pursuant to an
agreement solicited by the Company. Air travel tickets sold by the Company
pursuant to the TWA Agreement, unlike sales from most other consolidators, are
booked through SABRE and settled through ARC; however, the Company receives its
commission directly from the TWA Discounter monthly. In 1996, commissions
received under the TWA Agreement accounted for approximately 20% of the
Company's gross revenues, and commissions received from other consolidators
accounted for approximately 5% of the Company's gross revenues. The Company
anticipates that its current arrangement with the TWA Discounter will expire in
2001, when the TWA Discounter will no longer be able to sell tickets on TWA;
there can be no assurance, however, that the Company's TWA Agreement will be
extended beyond its scheduled expiration date in February 1998. See "Risk
Factors -- Risks Relating to Override Commissions."

World Wide Web Home Page

In anticipation of future technological innovations and consumer demand for
directly accessing information and making purchases on-line, the Company has
launched its home page at www.lowairfare.com on the World Wide Web, which
enables customers to access the Company's customized Turbo SABRE system through
their personal computers. The Company believes that consumers who prefer to
purchase travel and travel-related products and services on-line will choose to
access the Company's customized Turbo SABRE system over other options. Through
the Company's home page on the Internet, customers can access the Company's
customized Turbo SABRE system, view all information on the system, make
reservations and pay for their tickets by providing their major credit card
number for payment. In this process, the customer operates the Turbo SABRE
system in place of the reservation agent. As with purchases by telephone,
tickets are issued at the Tampa facility and delivered by overnight courier.
Commissions that the Company earns on transactions conducted through its Web
page are split equally with American Airlines.

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Processing Reservations and Sales

Each call that is processed by a reservation agent is handled in the
following manner. First, a customer generally requests information about the
airfare for a particular route. The reservation agent enters the relevant
parameters into the Turbo SABRE system and initiates a search. Each search takes
approximately two to three seconds to appear on the operator's monitor. The
reservation agent then quotes the airfares as they appear on the terminal
screen, in increasing order of price. A customer may request the most
inexpensive airfare of all or the most inexpensive airfare of a particular
carrier or type of carrier.

The Company estimates that an average of approximately one in 10 callers
who get through purchases an air travel ticket. If the customer decides to
purchase a ticket, the reservation agent requests and records certain standard
information such as name, address and telephone number. The Company only accepts
major credit cards for purchases by telephone. The Company does accept cash
payments from "walk-ins" to its Tampa facility (i.e. individuals who visit the
reservation center), although such sales constitute less than 1% of its total
sales. After a customer tells the reservation agent his or her credit card
number, the reservation agent executes a command causing the credit card number
to be verified with the credit card issuer, via the SABRE central information
system. As a result, once approval is received electronically by the reservation
agent at the Turbo SABRE terminal, the sale is complete and the credit card
payment is settled in accordance with the procedures described below under
"-- Settlement of Accounts." After each sale is completed, instructions are
automatically transmitted via the Turbo SABRE system from the reservation
agent's terminal to the Tampa facility's ticket printing area. Tickets are
printed along with an itinerary of the customer's travel arrangements. Tickets
are printed on stock forms provided by ARC. ARC requires the Company and other
travel agencies to implement various security measures in order to prevent theft
of such stock. In addition, each air carrier that authorizes the Company to
issue its tickets provides metal plates on which the Company's SABRE ticket
printing machines print such carrier's tickets. Once printed, tickets and
itineraries are placed inside a ticket envelope and a Federal Express package.
Federal Express personnel pick up all such packages each evening, six days a
week, and deliver them by Federal Express' standard next-morning delivery.

Refunds, Chargebacks and the SABRE Credit Card Authorization Guarantee

With the exception of sales to "walk-in" customers at the Tampa facility
(which account for less than 1% of sales), all of the Company's sales are paid
for by credit card. Once a sale is closed as described above under
" -- Reservation and Sale Sequence," it is subject only to refund or chargeback.
Because the majority of the most inexpensive air travel tickets are
non-refundable, only approximately 5% of the tickets the Company sells are
refundable, and the refunds processed by the Company average less than .01% of
sales. The Company recoups some of its costs associated with processing such
refunds by imposing a $50 charge on each refund.

Chargebacks similarly account for a small part of the Company's sales. A
chargeback results from a customer who refuses to pay for a charge on his or her
credit card statement. In such an instance, the Company generally must either
return its commission to the relevant credit card issuer or seek recourse
directly against the customer. Approximately 1% of the tickets sold by the
Company result in chargebacks.

None of the Company's credit card sales are subject to refusal by the
relevant credit card issuer to remit payment to the Company. Since
authorizations of credit card charges are effected electronically through the
SABRE system, SABRE offers its subscribers a guarantee of such authorizations
for a fee of $.50 per authorization. The Company pays this fee for all
authorizations, and in return, SABRE pays the Company the amount of any
commission or other payment refused by the relevant credit card issuer.

Airlines Reporting Corporation

All of the Company's sales of air travel tickets that are offered directly
by air carriers are settled through the Airlines Reporting Corporation ("ARC").
Such sales account for approximately 55% of the Company's sales.

For sales settled through ARC, all commissions and other amounts owed to
the Company are also settled through ARC according to ARC's procedures, except
that override commissions may also be paid directly by

32
<PAGE> 33

check or wire transfer from the relevant air carrier to the Company. See
"-- Override Commissions." The only sales of air travel that are not generally
settled through ARC are air travel tickets offered by consolidators; however,
some sales of air travel tickets by the Company that are offered by
consolidators are settled through ARC. See "-- Agreements with Consolidators."
For sales of air travel offered by consolidators, all commissions and other
amounts owed to the Company are generally paid directly by check or wire
transfer directory from the relevant consolidator to the Company.

As an ARC-affiliated travel agency, the Company is subject to all rules and
procedures imposed by ARC. ARC screens applications of new travel agencies,
initiates collection procedures against travel agencies in default of payment,
provides ticket stock to the travel agencies and facilitates payment between
travel agencies and airlines. Tickets purchased from the Company are reported
through ARC in accordance with the Company's Standard Ticket and Area Settlement
Plan ("ASP"). The ASP encompasses distribution and control of ARC air travel
tickets and other ARC traffic documents and processing and settlement services
in connection with the sale or issuance of such documents by the Company. ARC
administers the Company's ASP on behalf of ARC carriers.

Settlement of Accounts

Pursuant to ARC guidelines, the Company is required to submit weekly sales
reports to ARC each Tuesday with supporting documents for the week ended on the
prior Sunday. On the eighth day after the Company has submitted its sales report
to ARC (the second Wednesday thereafter), the Company's accounts are drafted by
ARC via its settlement bank (the "designated area bank") for amounts owed to
carrier airlines for tickets purchased, and the Company's accounts are credited
by ARC, via the designated area bank, for commissions owed to the Company. On
the same day, the designated area bank submits a draft to the Company's own bank
account for any remaining amount due and provides the collected funds and
related documents to the appropriate carrier. The designated area bank provides
each carrier with a record of its own sales activity and sends all credit card
charges to the appropriate credit card issuer or a merchant processor with an
accompanying computer generated invoice. The credit card issuer or a merchant
processor then pays each carrier directly for such billings minus the applicable
commission of the credit card issuer.

In connection with the settlement of the Company's accounts through ARC, if
there are insufficient funds in the Company's account to make the necessary
payments when due, the Company has 24 hours to make funds available. If such
funds are not made available within such 24-hour period, the Company becomes a
"defaulted agent." Pursuant to the terms of the Company's agreement with ARC,
ARC may terminate the Company immediately. The Company then has ten days to
appeal such termination to a special arbitration panel. If the agent is
terminated, ARC repossesses all ticket stock and plates from the Company, and
takes steps necessary to liquidate the surety bond in the amount of $20,000 that
the Company was required to post in order to become an ARC affiliate. Any
proceeds from liquidation of the surety bond are divided on a pro rata basis
among all ARC member airlines with which the Company had debts outstanding.

Toll-Free Telephone Numbers

The Company has contractual rights customary to the industry to use each of
the three toll-free numbers through which customers call its reservation
centers. In addition, if the Company for any reason fails to pay its monthly fee
for such number, the Company believes that it will have a cure period to pay all
amounts outstanding. Should the Company not make such payments and consequently
lose the right to use such number, the Company expects that a "cooling-off"
period of up to between 4 to 8 months will be imposed, during which no other
party may use such number.

MARKETING

The Company markets its services primarily to individual customers who pay
for their own tickets. The Company focuses its marketing efforts on placing
advertisements listing its three easy-to-remember names and toll-free telephone
numbers in Yellow Pages directories in those SMA's with populations whose
general travel profiles are attractive to the Company.

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<PAGE> 34

In order to evaluate the Company's media alternatives, the Company reviewed
several marketing tests conducted during 1994 and the first quarter of 1995 in
the New York market (cable TV, radio, newspaper, billboard and Yellow Pages
advertising). Based on that review, the Company concluded that Yellow Pages
directories generated the most calls and are the most cost-effective advertising
medium. There are over 7,000 Yellow Pages directories published by the Baby Bell
companies and approximately 5,000 directories published independently. The
Company believes that consumers use the Yellow Pages when they are ready to
purchase a good or service and that a high percentage respond by calling the
businesses listed in the directory they consult.

Given the broad distribution of Yellow Pages directories in metropolitan
areas and other large markets, the Company's strategy is to place advertisements
in directories of the largest SMA's, thereby reaching the greatest number of
consumers with each advertisement. The Company currently has advertisements of
its "1-800-LOW-AIR-FARE" name and "1-800-569-2473" toll-free number listed in
approximately 260 directories reaching a population of over 128 million people.
The Company has advertisements of its "1-800-FLY-4-LESS" name and
"1-800-359-4537" toll-free number listed in approximately 160 directories
reaching a population of over 122 million people. The Company also has
advertisements of its "1-888-999-VUELA" name and "1-888-999-8835" toll-free
number listed in over 21 directories reaching a population of over 13 million
people. The monthly cost incurred by the Company as of December 1996 to
advertise in Yellow Pages directories was approximately $27,000.

The Company's "1-800-FLY-4-LESS" name and number also appear (free of
charge to the Company) in approximately 40 newspapers nationwide reaching a
population of approximately 40 million people as part of a promotion campaign in
which the Company provides such newspapers with the lowest-priced fares for
selected routes. In addition, the Company advertises its "1-888-999-VUELA" name
and number in the Spanish language radio and television markets of south
Florida.

SABRE TECHNOLOGY

Global distribution systems are the principal means of air travel
distribution in the United States and a growing means of air travel distribution
internationally. The Company has chosen the SABRE system, which it believes is
the best such system available. A typical SABRE transaction -- consisting of an
information request by a subscriber, a search in SABRE and a response to the
subscriber -- averages less than two seconds in elapsed time. SABRE's "one-stop
shopping" capabilities permit the Company to locate, price, compare and purchase
the travel and travel-related products and services that best satisfy the
traveler's requirements. SABRE was named the "World's Leading Computer
Reservations System" for the third year in a row at the 1996 World Travel
Awards.

General

SABRE is the largest global distribution system for electronic travel in
the United States. SABRE was first developed in the 1960's and was one of the
world's first electronic airline reservation systems. SABRE evolved from
American Airlines' internal reservation system into a global distribution system
when SABRE's content was expanded to include additional airlines and other
travel providers. Computer reservation terminals were placed in travel agencies
beginning in 1976, and consumer direct access to SABRE became available through
computer on-line services in 1985 and on the Internet in 1996. Other global
distribution systems include Amadeus/System One, Covia and Worldspan.
Amadeus/System One is owned by Air France, Continental Airlines, Iberia and
Lufthansa. Covia, formerly known as Galileo/Apollo, is owned by United Airlines,
British Airways, Swissair, KLM Royal Dutch and USAir, among others, and the
Canadian affiliate of Galileo/Apollo is owned by Air Canada. Worldspan is owned
by Delta, Northwest and TWA and is affiliated with ABACUS, an Asian global
distribution system. Each offers similar products and services.

The SABRE system is able to perform high-volume, high-reliability,
real-time transactions processing 24 hours a day, 365 days a year, thus enabling
the creation of an efficient electronic marketplace for the sale and purchase of
travel. The SABRE system maintains approximately 45 million airfares (updated
throughout the day), processes an average of 93 million requests for information
per day. Such frequent updates of airfares are

34
<PAGE> 35

essential for the Company to be able to strive to provide its customers with the
lowest-priced airfares. Through SABRE, reservations may be booked on all major
U.S. and international airlines, but generally not on charter companies or
certain small airlines or on air travel offered for resale by consolidators.
Consolidators purchase large numbers of tickets directly from air carriers for
resale to the public. In certain cases, however, the tickets they sell may be
booked through SABRE. See "Operations -- Agreements with Consolidators." In
addition to providing information to subscribers about airlines and other travel
providers and their products and services, SABRE also allows travel agency
subscribers to print airline tickets, boarding passes and itineraries and
purchase travel insurance or book theater tickets or limousines. Additionally,
SABRE provides subscribers with travel information on matters such as currency,
health and visa requirements, weather and sightseeing.

Through SABRE, subscribers -- principally travel agencies but also business
travel departments and individual consumers -- can access information on, and
book reservations with, airlines and other providers ("associates") of travel
and travel-related products and services. In 1995, more than 600 associates
displayed information about their travel and travel-related products and
services through SABRE, and American Airlines has estimated that $40 billion in
travel and travel-related products and services were reserved through SABRE in
1995. SABRE subscribers are able to book reservations with more than 350
airlines and to make reservations with more than 55 car rental companies and
more than 190 hotel companies covering approximately 30,000 hotel properties
worldwide. During 1995, more airline bookings in the United States were made
through SABRE than through any other global distribution system. American
Airlines has estimated that in 1995 over 40% of all airline bookings made
through travel agencies in the United States were made through SABRE.

Turbo SABRE

Because travel agencies have differing needs, based on, among other things,
volume and location, the SABRE interface has been modified to meet the specific
needs of different categories of travel agents. Travel agents can choose SABRE
interfaces that range from simple text-based systems to feature-laden graphical
interfaces. The Company has taken advantage of these options by choosing the
Turbo SABRE system, an advanced point-of-sale interface that allows for screen
customization and reservations/sales process structuring and eliminates
SABRE-specific commands, thereby reducing keystrokes and training requirements
for high-volume travel companies that need high levels of functionality. Turbo
SABRE also provides data other than SABRE, such as back office hosts and local
area network (LAN) databases.

The Company has added a number of programs written and developed
exclusively for the Company to its Turbo SABRE system. They include programs
that generate "pop-up" windows to supply frequently requested or used
information, as well as programs to alert reservation agents, supervisors and
customer service agents using the system to errors frequently made by system
operators. The Company believes that these customized features enhance the speed
and efficiency of its operations and give it a competitive advantage over its
competitors.

SABRE Agreements

In April 1996, the Company renewed the agreement pursuant to which it
subscribes to the SABRE system at its Tampa headquarters for a five-year term.
In November 1996, the Company also executed a five-year subscriber agreement
pursuant to which it subscribes to the SABRE system at its San Diego reservation
center. Under these agreements, SABRE provides the Company with the hardware,
software, technical support and other services the Company needs to access SABRE
in return for leasing fees. These fees are reduced by the "segment incentives"
that the Company is credited with for each flight segment it books (at both its
Tampa and San Diego facilities) through the SABRE system. To the extent that the
segment incentives earned by the Company exceed the fees payable by it to
American during each quarter, the Company receives such excess in cash.

In 1997, SABRE also provided the Company with a lump sum cash promotional
support, and has agreed to pay the Company additional productivity cash advances
during each year of the agreement, subject to the Company booking a minimum
number of flight segments and the exact amount of which will depend upon the

35
<PAGE> 36

number of such flight segments. SABRE also extended to the Company lines of
credit toward the payment of charges incurred in connection with the lease of
the Turbo SABRE system.

INTELLECTUAL PROPERTY

The Company markets its services in the United States under the names,
"1-800-LOW-AIR-FARE," "1-800-FLY-4-LESS" and "1-888-999-VUELA."
"1-800-FLY-4-LESS," together with its logo, is a federally registered service
mark in the name of the Company. The Company has filed an application to
register the "1-800-LOW-AIR-FARE" name and logo as a federal service mark with
the U.S. Patent and Trademark Office. It has also filed an application to
register the Spanish language name, "1-888-999-VUELA," and related logo as a
federal service mark with the U.S. Department of Commerce.

On January 12, 1998, the Company received a letter from counsel for Travel
800, LLC, a wholly-owned subsidiary of Travel Services International, Inc.
("Travel") (i) stating that the Company's use and advertisement of its "1-800
LOW-AIRFARE" mark and corresponding number is causing confusion among consumers
and regulatory problems for Travel,(ii) claiming that Travel commenced use and
promotion of its "1-800 LOW-FARE" mark and number prior to the Company's use and
advertisement of its "1-800 LOW-AIRFARE" mark and number, and (iii) requesting
that the Company cease and desist from continued use and advertisement of its
"1-800 LOW-AIRFARE" name and corresponding number. The Company intends to
investigate the facts underlying Travel's letter, and to expeditiously formulate
a response thereto. The Company will vigorously assert all of its rights under
applicable law. In the event that the Company decides to forego its right to use
the "1-800 LOW-AIRFARE" mark, the Company will promote its "1-800 FLY-FOR-LESS"
mark and number. The Company does not believe that the above-described matter or
the outcome thereof will have a material adverse effect on the Company.

COMPETITION

The travel agency industry is highly fragmented and characterized by
intense competition. The Company competes with a variety of other providers of
travel and travel-related products and services. Its principal competitors are
(i) other telemarketing travel companies, (ii) traditional travel agencies,
(iii) air carrier vendors, and (iv) various online services available on the
Internet. The Company's competitors who are telemarketing travel companies and
traditional travel agencies have access to the same technology that the Company
uses and also to other global distribution systems of electronic travel. See
"-- SABRE Technology." Although distribution through travel agents continues to
be the primary method of travel distribution, new channels of distribution are
developing directly to businesses and consumers through computer on-line
services, the Internet and private networks. In addition, individual consumers
have access to other versions of SABRE technology and also to other global
distribution systems of electronic travel permitting consumer-direct travel
distribution via personal computer, cable television and other media. The
Company faces competition in these channels not only from its principal
competitors but also from possible new entrants in the sale of travel products
and services and from travel providers that distribute their products and
services directly. For example, in 1997, American Express Co. and Microsoft
Corp. released an on-line travel booking service called Microsoft Expedia. The
Company expects that this on-line travel booking service, while only in the
developmental stage, will eventually directly compete with the Company. In
addition, the Internet permits consumers to have direct access to travel
providers, thereby by-passing both travel agents and global distribution systems
such as SABRE. Further, some of the Company's competitors have significantly
greater financial or marketing resources than the Company. As a result, they may
be able to respond more quickly to new or emerging technologies and changes in
customer requirements than the Company.

During periods of recession in the travel industry, the Company's
competitive advantages with respect to quick, convenient processing of
reservations and purchases of lowest-priced airfare may be of reduced
importance. The Company's position in a recession may be more difficult than
some of its competitors, since the Company targets the consumer market which may
be the most adversely affected. See "Risk Factors -- Risks Relating to the
Airline Industry."

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<PAGE> 37

The Company believes that its ability to compete depends upon a number of
factors, including price, reliability, name and toll-free number recognition and
speed of price quotations and reservations. There can be no assurance that the
Company will be able to continue to compete successfully with respect to these
or other factors.

EMPLOYEES

At September 30, 1997, the Company had approximately 120 full-time worksite
employees at its Tampa headquarters and 65 full-time worksite employees at its
San Diego reservation center. Of such employees, 3 served in management, 141
were reservation agents or supervisors, 6 were involved in sales and marketing
and 35 served in various clerical and other administrative capacities. All of
the Company's reservation agents, supervisors and other worksite employees at
the Tampa reservation center are provided through a professional employee
leasing organization.

In November 1995, the Company entered into an agreement with a Payroll
Transfers Interstate, Inc (the "Employee Provider"), pursuant to which the
Employee Provider leases all of the Company's workers at the Tampa facility to
the Company. The Employee Provider is responsible for its employees' benefits.
The Company provides all necessary training and pays the Employee Provider an
amount equal to 11.71% of the gross payroll of the employees provided by the
Employee Provider. The services agreement between the Company and the Employee
Provider may be terminated on 30 days' prior written notice.

PROPERTIES

The Company's corporate headquarters are located at its 33,000 square foot
reservation center in Tampa, Florida. The Company also operates Stevens' 10,000
square foot reservation center in San Diego California. See "The Stevens
Merger." The Company leases these properties from unaffiliated third parties and
believes that its existing facilities are adequate for its current needs. The
Company currently pays approximately $14,300 per month for its Tampa
headquarters and approximately $7,000 per month for its San Diego reservation
center.

LITIGATION

The Company may be involved from time to time in routine litigation
incidental to its business. However, the Company believes that it is not a party
to any material pending litigation which is likely to have a significant
negative impact on the business, income, assets or operation of the Company. See
also "Risk Factors -- Risks Relating to Intellectual Property" and
"Business -- Intellectual Property."

SUBSIDIARY

In connection with its private placements conducted during 1996 the Company
formed a wholly-owned subsidiary, LAF Financial Services, Inc. ("LAF"), to act
as placement agent. The Company has dissolved LAF.

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<PAGE> 38

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and certain
information concerning them, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark D. Mastrini....... 33 President, Chief Operating Officer and Director
Jerrold B. Sendrow..... 52 Chief Financial Officer, Vice President -- Finance,
Treasurer and Secretary
Michael Gaggi.......... 35 Chairman of the Board
Pasquale Guadagno...... 39 Director
George A. Warde........ 74 Director
Carl A. Bellini........ 64 Director
L. Douglas Bailey...... 55 Director
Biagio Bellizzi........ 57 Vice President -- Marketing
Frank Zhao............. 37 Vice President -- Controller
</TABLE>

Mr. Mastrini has served as the Company's Chief Operating Officer since
January 1996, and as the Company's President since January 1997. Prior to
joining the Company, from October 1992 until October 1996, Mr. Mastrini was the
founder and owner of One on One Consulting, a consulting firm in Pueblo,
Colorado. From September 1992 until October 1994, Mr. Mastrini was owner of
X-Press Printing, a printing business in Pueblo, Colorado. From October 1993
until December 1996, he was the owner and editor of Pueblo West Eagle Monthly
Magazine. From May 1991 until June 1992, Mr. Mastrini was Vice President of
Sales and Marketing at the Braniff Airlines in Dallas, Texas, an airline which
subsequently filed for protection under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court in the Eastern District of New York in July 1992.

Mr. Sendrow has served as the Company's Chief Financial Officer, Vice
President-Finance, Treasurer and Secretary since the incorporation of the
Company in November 1995 and served as a director from inception until July
1997. From June 1994 through November 1995, Mr. Sendrow was employed by 1-800
Low-Air Fare, Inc., the Company's predecessor, in the same capacities. From
March 1993 through June 1994, Mr. Sendrow was employed by MSW Columbia Travel
Group, Inc. as vice president-finance. From December 1984 through March 1993,
Mr. Sendrow was employed by Pisa Brothers, Inc. as controller. Mr. Sendrow has
over 22 years experience in the travel industry.

Mr. Guadagno has served as a director of the Company since its
incorporation as 800 Travel Systems, Inc. in November 1995. Mr. Guadagno had
been a Senior Vice-President at M.S. Farrell, Inc., an investment banking firm,
from December 1996 to November 1997. From 1993 until November 1996, Mr. Guadagno
was Senior Vice President of Euro-Atlantic Securities, Inc., an investment
banking firm in Boca Raton, Florida. From 1990 through 1993, Mr. Guadagno was
employed as a Senior Vice President by Smith-Barney in New York City.

Mr. Gaggi has served as a director of the Company since its incorporation
as 800 Travel Systems, Inc. in November 1995. Mr. Gaggi served as a senior vice
president at Joseph Stevens & Company, Inc., an investment banking firm in New
York City from 1994 until December 1997, when he resigned from such position.
From 1993 until 1994, Mr. Gaggi was employed as a vice president by Barington
Capital. Mr. Gaggi has been a principal director of Upscale Eyeglass Boutiques
Myoptics since 1990. Joseph Stevens & Company, Inc. is not affiliated with or
related to The Joseph Stevens Group, Inc., the travel agency acquired by the
Company in the Steven Merger, or its sole stockholder, The Joseph Stevens Group,
LLC or any of its equity members.

George A. Warde has served as a director of the Company since October 1997.
Since 1992, he has served as a consultant to various businesses including
Oaklawn Partners Ltd. (a consulting firm), Sener (a financial advisory firm in
Madrid, Spain), Aircraft Braking Systems, Inc. (a manufacturer of aircraft
braking systems), Ayres Corp. (an aircraft manufacturer), Airline Capital
Holding Corp. (an investment holding company that invests in airline projects),
America Trans Africa Airlines (an airline) and Rich Airways (an airline on whose
board he is also serving as a director). From October 1994 until January 1995,
he served as temporary

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<PAGE> 39

president and chief executive officer of Private Jet Expeditions, an airline.
From August 1995 until February 1996, he served as president and chief executive
officer of Presidential Air, an airline. From 1988 until 1992, Mr. Warde was
managing director of Foshing Airlines, an airline which services continental
Asia. From 1983 until 1988, he served as vice chairman of Continental Airlines
and as president of its Pacific Division. From 1981 until 1983, he served as
president and chief executive officer of Continental Airlines, and as a member
of its board of directors. From 1974 until 1981, Mr. Warde served as senior vice
president and a board member of Airbus Industrie, an airplane manufacturer in
Toulouse, France. From 1960 until 1974, he was president, chief executive
officer and director of American Airlines Inc. From 1950 until 1960, Mr. Warde
was a superintendent of maintenance for Pan American World Airways. From 1940
until 1950, he was director of overseas maintenance for American Airlines.

Carl A. Bellini has served as a director of the Company since November
1997. Mr. Bellini is a director (since August 1994), chief operating officer
(since October 1993), and executive vice president of marketing and stores
(since August 1992) of Revco D.S., Inc., the nation's second largest drugstore
chain which was sold to the CVS chain in May 1997. From 1989 until 1992, he was
president and chief executive officer of Erol's, Inc., a video and electronics
chain. Prior thereto, from 1987 until 1989, Mr. Bellini was executive vice
president of stores for Revco. From 1980 until 1987, Mr. Bellini was associated
in various capacities with The Sherwin-Williams Company, including as president
and manager of the stores division and as group vice president in charge of the
retail paint and Gray Drug Fair drug store divisions. From 1975 until 1980, Mr.
Bellini served as senior vice president of operations, distribution and real
estate of Family Dollar Store. From 1955 until 1975, Mr. Bellini was associated
in a variety of operations and management positions with W.T. Grant, a retail
variety chain. Mr. Bellini is on the board of directors of Sel-Lab Marketing, a
cosmetics firm. He is also advisor to the boards of Manco, a privately-owned
adhesives and tape company, Sensormatic, a New York Stock Exchange-listed
manufacturer of security devices, and Farmacia Ahumada, a Chilean drugstore
chain, and a consultant to Ratcher Press, a publisher of Chain Drug Review and
Mass Marketing Review, which are industry publications.

L. Douglas Bailey has served as a director of the Company since November
1997. In 1995, he founded Bailey & Associates, Inc., an international retail
consulting firm providing information and assistance to consumer goods companies
and retail stores, distribution centers and business properties. From 1993 until
1995, Mr. Bailey was president of Home Shopping Club, Inc., the flagship company
of the Home Shopping Network. From 1972 until 1992, he was employed in various
capacities with the Eckerd Drug Company, most recently as senior vice president
of procurement. In 1980, Mr. Bailey and his wife founded Regent Properties, a
company specializing in the development of commercial warehouse and office
space. From 1969 until 1970, Mr. Bailey was the Florida general merchandise
manager of Cunningham Drugs, a drugstore chain. From 1964 until 1968, Mr. Bailey
was softlines merchandise manager of Sears, Roebuck & Co. Mr. Bailey is on the
board of directors of Sel-Lab Marketing, a cosmetics firm, and Goodwill
Industries-Suncoast, Inc., a private foundation. He also serves on the boards of
the Pinellas (Florida) Industrial Council and the Florida Lung Association, and
serves on the board of trustees or advisory boards of Ruth Eckerd Hall (a
performing arts center), The Goodwill-Suncoast Foundation, Inc. (a private
foundation), the University of Florida Retail School and the University of
Florida's Stavros Economic Center.

Mr. Bellizzi has served as the Company's Vice President-Operations since
its incorporation as 800 Travel Systems, Inc. in November 1995. From June 1995
through November 1995, Mr. Bellizzi was employed by 1-800 Low-Air Fare, Inc.,
the Company's predecessor, as vice president-operations. From 1991 through June
1995, Mr. Bellizzi was employed by Thomas Cook Travel, Inc. as Director-Leisure
Marketing from 1993 until 1995 and as Director -- Retail Offices from 1991 to
1993. Mr. Bellizzi has over 30 years experience in the travel industry.

Frank Zhao was appointed Vice President -- Controller of the Company in
October 1997. Prior to joining the Company, Mr. Zhao a senior accountant at Toho
Shipping (USA), a shipping company. From 1993 until 1995, Mr. Zhao was an
associate auditor at Coopers and Lybrand in Washington, D.C. From 1986 until
1990, Mr. Zhao was finance manager of PDL Ltd., a trading and investment company
in Hong Kong. From 1983 until 1986 he was a financial consultant at Beijing
International Trust and Investment Corporation, an investment company in
Beijing, China. Mr. Zhao is a certified public accountant.

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<PAGE> 40

DIRECTOR COMPENSATION

As compensation for services, after completion of this Offering
non-employee directors will be paid $2,000 per month and will be reimbursed for
all expenses incurred in participating in Board Meetings. In addition, Michael
Gaggi, will enter into a Consulting Agreement which will provide for a fee of
$5,000 per month.

The Company issued options to purchase 50,000 shares, exercisable at $3.00
per share, to each of Messrs. Warde, Bellini and Bailey at the time each was
elected to the Board of Directors, and has agreed to issue options to purchase
an additional 50,000 shares to each of them (exercisable at the same price) six
months after the Closing. The Company will record a compensation expense of
$2.00 per share (the price at which the Common Stock is offered hereby less the
exercise price) for each share underlying such options.

During 1996 the Company paid personal expenses of certain directors
aggregating approximately $100,000. Of such amount $65,750 was paid on behalf of
Michael Gaggi for transportation, lodging, entertainment and long-distance
telephone expenses and $34,250 for transportation, lodging, entertainment and
long-distance telephone expenses was paid on behalf of Mr. Balsamo, a former
director of the Company. Mr. Gaggi and Mr. Balsamo have agreed to repay such
$100,000, together with interest from September 1, 1997 at the rate of 7% per
annum, in eight equal quarterly installments commencing March 31, 1998. For
services rendered, the Company issued options to purchase 100,000 shares of
Common Stock, exercisable at $1.00 per share, to each of Messrs. Gaggi and
Guadagno. In addition, certain directors have received commissions in connection
with private placement of the Company's securities. See "Certain Transactions."

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or payable in respect
of the year ended December 31, 1996 to the Company's executive officers who
earned over $100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------------------
-------------------------------- RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS($)(1) OPTIONS/SARS COMPENSATION
------------------ ------- ------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark Mastrini.......................... $66,459 $120,000(1)
President and Chief Operating Officer
Lucien Bittar.......................... $91,093
Former President and Chief Operating
Officer
</TABLE>

- ---------------

(1) Represents 100,000 shares of Common Stock, valued at $1.20 per share.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of Messrs.
Mastrini, Sendrow and Bellizzi. Mr. Mastrini's employment agreement is currently
effective. The employment agreements of Messrs. Sendrow and Bellizzi will
commence on the closing of this Offering. Each of the employment agreements
terminates on September 30, 2000. Pursuant to their respective agreements each
of Messrs. Mastrini, Sendrow and Bellizzi has agreed to donate his entire
working time and attention to the business of the Company. In addition, each of
these individuals has agreed not to compete with the business of the Company for
a period of ninety days following the termination of his employment with the
Company.

Pursuant to his agreement, Mr. Mastrini is entitled to receive a base
salary initially at the rate of $125,000 per year. The base salary is to
increase by 5% plus the annual increase in the consumer price index on each of
October 1, 1998 and 1999. In addition to his base salary, Mr. Mastrini is to
receive medical and disability insurance comparable to that provided to the
Company's executive employees and a car allowance of $500 per month. As
additional compensation for his services, the Company agreed to issue an
aggregate of 150,000 shares of Common Stock to Mr. Mastrini, including 100,000
shares issued upon execution of his employment agreement, of which 50,000 vested
immediately and 50,000 are subjected to forfeiture in the event

40
<PAGE> 41

Mr. Mastrini is not in the employ of the Company 12 months after execution of
the agreement, and 50,000 shares are to be issued to him on the second
anniversary of the execution of his agreement. In addition to his shares, the
Company has agreed to issue to Mr. Mastrini options, exercisable at $5.00 per
share, to purchase 50,000 shares of Common Stock, and upon completion of this
Offering to issue to Mr. Mastrini registered warrants, identical to the Warrants
offered hereby, to purchase 25,000 shares of Common Stock.

In the event of death, all of his stock and options will vest immediately.
In the event that Mr. Mastrini's employment is "constructively terminated" (as
that term is defined in his employment agreement) all of his stock and options
will vest immediately and he will be entitled to receive the compensation due
under his employment agreement in one lump sum.

Pursuant to his agreement Mr. Sendrow is entitled to receive a base salary
initially at the rate of $77,000 per year. Mr. Sendrow's base salary increases
by 5% plus the annual increase in the consumer price index on each of October 1,
1998 and 1999. In addition to his base salary Mr. Sendrow is to receive medical
and disability insurance comparable to that provided to the Company's executive
employees generally and a car allowance of $350 per month. At the time of the
execution of his employment agreement, the Company had issued an aggregate of
100,000 shares of Common Stock to Mr. Sendrow. As additional consideration for
his services, the Company issued options, exercisable at $5.00 per share, to
purchase 25,000 shares of the Company's Common Stock.

Pursuant to his agreement, Mr. Bellizzi is entitled to receive a base
salary initially at the rate of $50,000 per year, subject to a discretionary
increase based upon the Board of Directors review of his performance at the end
of this year. Mr. Bellizzi's base salary increases by 5% plus the annual
increase in the consumer price index on each of October 1, 1998 and 1999. In
addition to his base salary, Mr. Bellizzi is to receive medical and disability
insurance comparable to that provided to the Company's executive employees
generally. At the time of the execution of his employment agreement, the Company
had issued an aggregate of 50,000 shares of Common Stock to Mr. Bellizzi. As
additional consideration for his services, the Company issued options,
exercisable at $5.00 per share, to purchase 12,500 shares of the Company's
Common Stock.

CONSULTANT

Lucien Bittar has been a consultant to the Company since January 1997, and
receives a consulting fee at the rate of $6,000 per month. Mr. Bittar served as
the Company's President and Chief Operating Officer and a director from its
incorporation as 800 Travel Systems, Inc. in November 1995 until January 1997.
Mr. Bittar served as the Vice-Chairman of the Board from April 1996 until
February 1997. From August 1994 through November 1995, Mr. Bittar was president
and a director of 1-800 Low-Air Fare, Inc., the Company's predecessor. Mr.
Bittar founded Filigree, Inc., a travel consulting company, in May 1989 and
served as its president and chief executive officer from that time until he
joined 1-800 Low-Air Fare, Inc. in August 1994. Prior to 1989, Mr. Bittar was
employed by Thomas Cook Travel, Inc. During that time he served as executive
vice president responsible for all United States operations and a member of the
Board of Directors. Mr. Bittar currently owns 200,000 shares of Common Stock.

ADDITIONAL SERVICE PROVIDER

Scot Spencer was engaged by the Company pursuant to a Services Agreement in
November 1995 to assist the Company in locating sources of financing. Mr.
Spencer's agreement, which by its terms expired on December 31, 1996, provided
for a weekly fee of $2,500. Since the expiration of the agreement, the Company
has paid Mr. Spencer a fee of $3,000 per week for services rendered with respect
to the Company's financing arrangements, including services rendered with
respect to this Offering. In addition, the Company had paid various expenses
incurred by Mr. Spencer in performing services on behalf of the Company. Mr.
Spencer resigned from his position with the Company as of September 19, 1997.
The Company has not engaged Mr. Spencer from such date and does not intend to
engage him in the future. In May 1996, in a proceeding captioned United States
of America v. Scot Spencer, U.S. District Court, E.D.N.Y., Mr. Spencer was
convicted of one count of bankruptcy fraud and one count of conspiracy to commit
bankruptcy fraud as a result of his activities in connection with Braniff
Airlines and sentenced to 51 months in jail. On appeal, the

41
<PAGE> 42

Second Circuit Court of Appeals affirmed Mr. Spencer's conviction and sentence
on October 30, 1997. Mr. Spencer has moved for reargument and for a re-hearing
en banc, and his sentence has been suspended pending the outcome of such motion.
From 1988 through 1989 Mr. Spencer served as a consultant to the corporate
parent of Braniff Airlines, which filed for bankruptcy protection under Chapter
11 of the Bankruptcy Code in 1989 in the U.S. Bankruptcy Court, Central District
of Florida. From 1990 to June 30, 1991 Mr. Spencer served as president of
Braniff Airlines which subsequently filed for bankruptcy in the Bankruptcy
Court, Eastern District of New York, in July 1992 at which time it permanently
ceased operations.

PROMOTER

Vito Balsamo, a former director of the Company, may be considered a
promoter of the Company. Since December 1997, Mr. Balsamo has been Vice
President of Investments at Lexington Capital Partners and Company Ltd. From
1994 until December 1997, Mr. Balsamo held the position of Senior Vice President
of Joseph Stevens & Company, L.P., the investment banking firm with which Mr.
Gaggi is affiliated. Before joining Joseph Stevens & Company Mr. Balsamo served
as Vice President of Barington Capital (September 1993 -- 1994) and as account
executive with Thomas James and Company (September 1992 -- September 1993).

ENGAGEMENT OF EMPLOYEES AND OTHERS

The Board of Directors has determined that the engagement of any
individual, as an employee or otherwise, whose compensation is reasonably
anticipated to exceed $50,000 per annum, inclusive of reimbursable expenses,
will require approval of a majority of the Board.

STOCK OPTION PLAN

Under the Company's 1997 Stock Option Plan (the "Stock Option Plan"),
250,000 shares of Common Stock have been reserved for issuance upon exercise of
stock options. The Stock Option Plan is designed as a means to attract, retain
and motivate qualified and competent persons who are key to the Company and its
subsidiaries, including employees, officers and directors, and upon whose
efforts and judgment the success of the Company is largely dependent, through
the encouragement of stock ownership in the Company by such persons. For
purposes of this discussion, the term director includes directors of the Company
and directors of any of its subsidiaries.

The Compensation Committee of the Board of Directors or, in the absence of
the appointment of a Committee, the Board of Directors (collectively referred to
herein as the "Compensation Committee") administers and interprets the Stock
Option Plan and is authorized to grant options thereunder to all eligible
employees, officers and directors of the Company. The Stock Option Plan provides
for the granting of both incentive stock options and nonqualified stock options.
Options are granted under the Stock Option Plan on such terms and at such prices
as determined by the Compensation Committee, except that the per share exercise
price of incentive stock options cannot be less than the fair market value of
the Common Stock on the date of grant. Each option is exercisable after the
period or periods specified in the option agreement, but no option may be
exercisable after the expiration of ten years from the date of grant. Incentive
stock options granted to an individual who owns (or is deemed to own) at least
10% of the total combined voting power of all classes of stock of the Company
must have an exercise price of at least 110% of the fair market value of the
Common Stock on the date of grant and a term of no more than five years.

No incentive stock option, and unless the Compensation Committee's prior
written consent is obtained (which consent may be obtained at the time an Option
is granted) and the transaction does not violate the requirements of Rule 16b-3
promulgated under the Exchange Act no nonqualified stock option, may be
transferred other than by will or the laws of descent and distribution. Each
option may be exercisable during the optionee's lifetime only by the optionee,
or in the case of a nonqualified stock option that has been transferred with the
Compensation Committee's prior written consent, only by the transferee consented
to by the Compensation Committee. Unless the Compensation Committee's prior
written consent is obtained (which consent may be obtained at the time an Option
is granted) and the transaction does not violate the requirements of Rule 16b-3
promulgated under the Exchange Act, no shares of Common Stock acquired by an
officer, as that term is defined under Rule 16b-3, of the Company or director
pursuant to the exercise of an

42
<PAGE> 43

option may be transferred prior to the expiration of the six-month period
following the date on which the option was granted.

The Stock Option Plan also authorizes the Company to make or guarantee
loans to optionees to enable them to exercise their options. Such loans must (i)
provide for recourse to the optionee, (ii) bear interest at a rate no less than
the prime rate of interest, and (iii) be secured by the shares of Common Stock
purchased. The Board of Directors has the authority to amend or terminate the
Stock Option Plan, provided that no such action may substantially impair any
outstanding option without the written consent of the holder, and provided
further that certain amendments of the Stock Option Plan are subject to
shareholder approval. Unless terminated sooner, the Stock Option Plan will
continue in effect until all options granted thereunder have expired or been
exercised, provided that no options may be granted after 10 years from the date
the Board of Directors adopted the Stock Option Plan.

As of December 16, 1997, the Company had outstanding options to purchase an
aggregate of 87,500 shares of Common Stock under the Plan at a weighted average
exercise price of $5.00 per share.

LOCK-UP AGREEMENTS

Each of the officers and directors of the Company, as well as Vito Balsamo,
a former director of the Company, has agreed not to sell any of the shares of
Common Stock or Warrants currently held by him for a period of two years from
the Closing. In addition, Mr. Bittar, a former officer and director of the
Company, has agreed not to sell any of his shares of Common Stock for a period
of 15 days after the Closing, and no more than 25,000 of his shares thereafter
for a period of two years after the Closing.

CERTAIN TRANSACTIONS

The Company commenced operations in November 1995, upon the Company's
purchase of certain assets and assumption of certain liabilities of 1-800
Low-Air Fare, Inc., a Delaware corporation, and its wholly-owned subsidiary S.
Travel, Inc., a Delaware corporation (collectively, the "Predecessor Business"),
pursuant to an Asset Purchase Agreement dated November 13, 1995 (the "Asset
Purchase Agreement"). Under the Asset Purchase Agreement, the Company acquired
all rights to the tradename "1-800 Low Air Fare" and the telephone number
corresponding thereto, together with certain furniture, fixtures, equipment and
other assets including the Predecessor Business' SABRE Subscription Agreement.
In exchange, the Company paid the Predecessor Business $100,000, and assumed
certain of its liabilities. Additionally, the Company agreed to issue 600,400
shares of its Common Stock, including 300,000 shares to be issued to the
creditors of the Predecessor Business in exchange for forgiveness of the debt of
the Predecessor Business, at the exchange rate of $10 of debt for each share of
Common Stock. The creditors of the Predecessor Business elected to convert
$1,664,340 of such indebtedness for 166,434 shares of Common Stock. The
remaining 133,566 shares were issued to S. Travel, Inc.

In 1996, the Company issued 100,000 shares of Common Stock to Mark D.
Mastrini, the Company's Chief Operating Officer, as part of his compensation. In
connection with this issuance the Company accrued compensation expense of
$120,000. The Company has also agreed to issue 50,000 shares to Mr. Mastrini if
he remains in the employ of the Company for a period of two years from the
closing of this Offering. In addition, pursuant to the terms of his Employment
Agreement, the Company agreed to grant to Mr. Mastrini options to purchase
50,000 shares of Common Stock, exercisable at $5.00 per share and warrants,
identical to those offered hereby, to purchase 25,000 shares. The 50,000 shares
to be granted to Mr. Mastrini will be treated as compensation and amortized over
the two-year period during which they are deemed earned.

In 1995, in connection with the initial capitalization of the Company, the
Company issued 100,000 shares of Common Stock to Jerrold B. Sendrow, the
Company's Chief Financial Officer, for which he paid $1,000. The Company did not
accrue any compensation expense in connection with this transaction. In
addition, in 1997 the Company agreed to grant to Mr. Sendrow options to purchase
25,000 shares of Common Stock, exercisable at $5.00 per share.

In 1995, in connection with the initial capitalization of the Company, the
Company issued 50,000 shares of Common Stock to Biagio Bellizzi, the Company's
Vice-President, Marketing for which he paid $500.00.

43
<PAGE> 44

The Company did not accrue any compensation expense in connection with this
transaction. In addition, in 1997 the Company granted to Mr. Bellizzi options to
purchase 12,500 shares of Common Stock, exercisable at $5.00 per share. The
Company did not accrue any compensation expense in connection with the grant of
such options to Mr. Bellizzi or in connection with the options granted to
Messrs. Mastrini and Sendrow set forth in the two preceding paragraphs.

Perry Trebatch, who beneficially owns more than 5% of the Company's
outstanding capital stock, has purchased shares of the Company's Common Stock
and loaned money to the Company on various occasions.

In August 1995, Mr. Trebatch loaned $200,000 to the Predecessor Business
for which he received notes bearing interest at the rate of 10% per annum. The
obligation under these notes was assumed by the Company in connection with the
acquisition of the assets of the Predecessor Business. In addition to its
agreement to pay the principal and interest accrued, the Company issued 200,000
shares of its Common Stock to Mr. Trebatch in consideration for his agreement to
allow the Company to assume this loan. Such shares were valued at $1.20 per
share for purposes of determining the purchase price of the Predecessor
Business. As a result of the Company's failure to timely repay these notes, in
1996, the principal amount thereof was increased to $300,000 and the Company
accrued interest expense of $100,000. As a result of the Company's failure to
timely repay a portion of the principal amount of these notes, at the time a
partial principal payment was made, the remaining principal balance of $200,000
was increased to $250,000 and the Company accrued interest expense of $50,000.
In April 1996, Mr. Trebatch purchased 100,000 shares of Common Stock at a price
of $2.00 per share. In January 1997, Mr. Trebatch was issued 60,000 shares in
consideration of his agreement to extend the due date of the Company's notes in
respect of which the Company accrued interest expense of $120,000. Taking into
account the value of the shares received by Mr. Trebatch for his loans and the
increase in principal resulting from the Company's failure to timely repay
amounts due, Mr. Trebatch has received interest on all amounts loaned to the
Company at an effective rate of 135% per annum.

As of December 1997, the Company and Mr. Trebatch entered into an amended
agreement wherein Mr. Trebatch agreed to amend the terms of his loan to the
Company to provide that interest on the outstanding principal amount thereof
will accrue at the rate of 12% per annum beginning as of the Closing Date, and
that interest accrued and the principal portion of the Note will be paid in
twelve equal monthly installments commencing December 31, 1997 and continuing
through November 30, 1998. Under the amended agreement, the Company has no
obligation to register Mr. Trebatch's shares and, with respect to shares of
Common Stock he currently owns, Mr. Trebatch has agreed that he will not offer,
sell or otherwise dispose of ("Sell") any such shares for a period of one year
after the Closing. In addition, Mr. Trebatch agreed to return warrants to
purchase 300,000 shares of Common Stock at an exercise price of 110% of the
price at which the Common Stock is being offered hereby (the "IPO Price") which
he had previously been granted and receive in lieu therefor warrants to purchase
100,000 shares of Common Stock at an exercise price equal to 200% of the IPO
Price, exercisable for a period of 7 years. To secure its obligations under the
loan, the Company had previously granted Mr. Trebatch a lien on portions of the
Company's telephone system, which lien remains in effect.

Michael Cantor, who beneficially owns more than 5% of the Company's
outstanding capital stock, has purchased shares of the Company's Common Stock
and loaned money to the Company on various occasions.

In October 1995, Mr. Cantor loaned the Predecessor Business $100,000. This
obligation was assumed by the Company in connection with the acquisition of the
assets of the Predecessor Business. As a result of the Company's failure to
timely repay this amount, in June 1996 Mr. Cantor was issued 220,600 shares of
Common Stock in respect of which the Company accrued interest expense of
$551,500. In January 1996, Mr. Cantor loaned the Company $100,000. In addition
to interest at the rate of 10% per annum, the Company issued Mr. Cantor 10,000
shares of Common Stock in consideration of this loan in respect of which the
Company accrued interest expense of $12,000. Taking into account the value of
the shares received by Mr. Cantor as consideration for his loans to the Company
and as a consequence of the Company's failure to timely repay amounts due, Mr.
Cantor has received interest on all amounts loaned to the Company at an
effective rate of 886% per annum.

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<PAGE> 45

The terms of Mr. Cantor's agreements with the Company contain certain
anti-dilution provisions which he claims require that the Company issue to him
138,000 shares upon completion of this Offering and additional shares in the
event that the Company issues any additional shares during the 90-day period
commencing upon completion of this Offering. In satisfaction of its obligations
under these provisions the Company has agreed to register Mr. Cantor's shares on
the Registration Statement of which this Prospectus is a part. Mr. Cantor has
agreed not to Sell any of his shares for a period of one year after the Closing.

In connection with the acquisition of the assets of the Predecessor
Business, Dr. Jose Colon (a shareholder who is not an officer, director,
promoter, or affiliate of the Company), was issued 40,000 shares of Common
Stock. In January 1996, in connection with a loan made by Dr. Colon, the Company
issued 2,500 shares of Common Stock to Dr. Colon, valued at $1.20 per share in
connection with which it accrued interest expense of $3,000. In July 1996, as a
result of its failure to timely repay this loan the Company issued 30,000 shares
of Common Stock to Dr. Colon, in respect of which the Company accrued interest
expense of $75,000. Taking into account the value of the shares received by Dr.
Colon as consideration for his loans to the Company and as a consequence of the
Company's failure to repay amounts due, Dr. Colon has received interest on all
amounts loaned by the Company at an effective rate of 312% per annum.

The terms of Mr. Colon's agreements with the Company contain certain
anti-dilution provisions which he contends require that the Company issue to him
12,500 shares upon completion of this Offering and additional shares if the
Company should issue any additional shares during the 90-day period commencing
upon completion of this Offering. In satisfaction of its obligations under these
provisions the Company has agreed to register Mr. Colon's shares in the
Registration Statement of which this prospectus is a part. Mr. Colon has agreed
not to Sell any of his shares for a period of one year after the Closing.

In 1996 the Company sold and issued 1,387,500 shares of Common Stock to
investors in a private placement conducted in connection with various
individuals who received finder's fees. The Common Stock was sold at an average
price per share of $2.11. The individuals set forth below were paid the
following commissions in connection with the Company's securities in the private
placement: (i) Pasquale Guadagno (Director) -- $45,000; (ii) Mark D. Mastrini
(President, Chief Operating Officer and Director) -- $2,000; (iii) Jerrold B.
Sendrow (Vice-President -- Finance, Chief Financial Officer, Treasurer and
Secretary) -- $2,000; (iv) Scot Spencer (service provider to the
Company) -- $231,000; (v) Scott M. Goodman an unaffiliated broker -- $40,000;
and (vi) Mario Giovanelli an unaffiliated broker -- $20,000. Messrs. Mastrini
and Sendrow subsequently returned such commissions to the Company. The offering
was made in reliance on Section 4(2) of the Securities Act and Regulation D
promulgated thereunder, as an offering only to "accredited investors" (as such
term is defined in Rule 501 of the Securities Act) without general solicitation
or advertisements. The Company also paid Mr. Guadagno $10,000 in connection with
the issuance of shares to one of the Company's lenders.

In 1996, the Company issued options to purchase 100,000 shares of Common
Stock at $1.00 per share to each of Messrs. Gaggi and Guadagno (each a director
of the Company) and to Mr. Vito Balsamo, a former director of the Company.

The Company believes that each of the foregoing transactions was completed
on terms at least as favorable to the Company as those which would have been
obtained from an unaffiliated party, and intends to conduct all future
transactions with directors, officers and affiliates of the Company on an
arms-length basis on terms no less favorable than would be obtained from
unaffiliated third parties. Furthermore, all such transactions will require the
approval of a majority of the independent, disinterested directors. In addition,
the Company intends that in the future, all stock options that it grants will
have exercise prices of no less than 85% of the then current fair market value
of the Common Stock.

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<PAGE> 46

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock by (a) each person who beneficially owns
more than five percent of the Company's outstanding Common Stock, (b) each
executive officer who owns beneficially any shares, and (c) all directors and
executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING(2)
BENEFICIALLY ---------------------------------
NAME AND ADDRESS(1) OWNED(1) BEFORE OFFERING AFTER OFFERING
------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Michael Gaggi(3)................................. 570,000 9.56% 7.4%
Pasquale Guadagno(4)............................. 795,898 13.4% 10.3%
Mark D. Mastrini(5).............................. 125,000 2.1% 1.6%
Jerrold B. Sendrow............................... 100,000 1.7% 1.3%
Biagio Bellizzi.................................. 50,000 0.84% .65%
Michael Cantor................................... 481,609 8.1% 6.3%
Perry Trebatch................................... 480,000 8.1% 6.2%
Mees Pierson (Bahamas) Ltd.(6)................... 492,000 8.26% 6.40%
George A. Warde(7)............................... 50,000 .84% .65%
Carl A. Bellini(7)............................... 50,000 .84% .65%
L. Douglas Bailey(7)............................. 50,000 .84% .65%
Joseph and Louise Modica(8)...................... 434,566 7.3% 5.6%
Officers and Directors as a Group(9) (8
persons)....................................... 1,790,898 30.1% 23.3%
</TABLE>

- ---------------

* Less than 1%

(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 4802 Gunn Highway, Suite 140, Tampa, Florida 33624.

(2) Unless otherwise indicated, each person has sole voting and investment power
with respect to all such shares.

(3) Does not include 2,500 shares owned beneficially by Rose Gaggi, Mr. Gaggi's
mother, as to which shares Mr. Gaggi disclaims beneficial ownership.

(4) Includes 65,998 shares purchasable pursuant to options immediately
exercisable at a price of $1.00 per share.

(5) Includes 25,000 shares purchasable upon exercise of warrants identical to
the Warrants being offered hereby.

(6) Includes 67,000 shares purchasable upon exercise of options immediately
exercisable at a price of $1.00 per share. The beneficial owners of the
shares registered under this name are Clive Knowles and Sonia Gallanos.

(7) Comprised of 50,000 shares purchasable pursuant to options immediately
exercisable at a price of $3.00 per share.

(8) The address of such persons is 157 Narrow North, Staten Island, New York
10305.

(9) Includes 240,998 shares purchasable pursuant to the options referred to in
footnotes 4, 5 and 7.

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<PAGE> 47

CONCURRENT OFFERING

The Registration Statement of which this Prospectus forms a part also
includes the Prospectus Supplement with respect to an offering by the Selling
Securityholders. The 819,566 Registered Shares and 275,000 Registered Warrants
are being registered, at the Company's expense (except for legal fees and
expenses for counsels to the Selling Securityholders), under the Securities Act
and are expected to become tradeable on or about the date of this Prospectus,
subject to lock-up agreements pursuant to which certain of the Registered Shares
may not be sold for varying periods after the date of this Prospectus without
the Representatives' prior consent. See "Shares Eligible for Future Sale." The
Company will not receive any proceeds from the sale of the Registered
Securities. Sales of Registered Securities or even the potential of such sales
could have an adverse effect on the market prices of the Shares and the
Warrants.

Except with respect to Mark D. Mastrini, the Company's President, Chief
Operating Officer, a director and stockholder, there are no material
relationships between any holders of the Registered Securities and the Company,
nor have any such material relationships existed within the past three years.
See "Principal Stockholders" and "Certain Transactions." The Company has been
informed by the Representative that there are no agreements between the
Representatives and any Selling Securityholders. See "Shares Eligible for Future
Sales."

The holders of the Registered Securities have agreed not to offer, sell or
otherwise dispose of ("Sell") such Registered Securities for varying periods of
time. The Company will (i) amend the Prospectus Supplement if these arrangements
are waived for 10% or more of the shares of the Selling Securityholders, and
(ii) sticker the Prospectus Supplement if these arrangements are waived for
between 5% and 10% of the shares of the Selling Securityholders.

The Selling Securityholders may from time to time sell all or a portion of
their Registered Securities in the over-the-counter market or on any national
securities exchange or automated interdealer quotation system on which the
Registered Securities may hereafter be listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The Registered Securities may be
sold directly or through brokers or dealers or in a distribution by one or more
underwriters on a firm commitment or best efforts basis. The methods by which
the Registered Securities may be sold include (i) a block trade (which may
involve crosses) in which the broker or dealer engaged will attempt to sell the
Registered Securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction, (ii) purchases by a broker or
dealer as principal and resales by such broker dealer for its account pursuant
to this Prospectus and the accompanying Prospectus Supplement, (iii) ordinary
brokerage transactions and transactions in which the broker solicits purchasers
or to or through marketmakers, (iv) transactions in put or call options or other
rights (whether exchange-listed or otherwise) established after the
effectiveness of the Registration Statement of which this Prospectus is a part
and (v) privately negotiated transactions. In addition, any of the Registered
Securities that qualify for sale pursuant to Rule 144 under the Securities Act
may be sold in transactions complying with such Rule, rather than pursuant to
this Prospectus and the accompanying Prospectus Supplement.

In the case of the sales of the Registered Securities effected to or
through broker-dealers, such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Securityholders or the
purchasers of the Registered Securities, sold by or through such broker-dealers,
or both. The Company has advised the Selling Securityholders that the
anti-manipulative Regulation M under the Exchange Act may apply to their sales
in the market and has informed them of the need for delivery of copies of this
Prospectus and the accompanying Prospectus Supplement. The Company is not aware
as of the date of this Prospectus of any agreements between any of the Selling
Securityholders and any broker-dealers with respect to the sale of the
Registered Securities. The Selling Securityholders and any broker-dealers or
agents participating in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and any commissions
received by any such broker-dealers or agents and profit on any resale of the
Registered Securities may be deemed to be underwriting commissions under the
Securities Act. The commissions received by a broker-dealer or agent may be in
excess of customary compensation. The Company

47
<PAGE> 48

will receive no part of the proceeds from the sale of any of the shares of the
Registered Securities by the Selling Securityholders.

The Company will pay all costs and expenses incurred in connection with the
registration under the Securities Act of the Registered Securities offered by
the Selling Securityholders, including without limitation all registration and
filing fees, listing fees, printing expenses, fees and disbursements of counsel
and accountants for the Company. Each Selling Stockholder will pay all brokerage
fees and commissions, if any, incurred in connection with the sale of the
Registered Securities owned by the Selling Stockholder. In addition, the Company
has agreed to indemnify the Selling Securityholders against certain liabilities,
including liabilities under the Securities Act.

There is no assurance that any of the Selling Securityholders will sell any
or all of the Registered Securities offered by them.

DESCRIPTION OF SECURITIES

As of the date hereof, the authorized capital stock of the Company consists
of (i) 20,000,000 shares of Common Stock, par value $.01 per share, 5,959,709
shares of which are issued and outstanding, and (ii) 1,000,000 shares of
Preferred Stock, of which none are outstanding. The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."

COMMON STOCK

Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Each holder of Common Stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of stockholders, including the election of directors.
Holders of Common Stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities. Except as disclosed
herein, there are no conversion rights or redemption or sinking fund provisions
with respect to the Common Stock. All outstanding shares of Common Stock are,
and the shares of Common Stock offered hereby will be when issued, fully paid
and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of Preferred
Stock and to fix the designation, preferences, powers and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof including, without limitation, the dividend rate, voting
rights, conversion rights, redemption price and liquidation preference per
series of Preferred Stock. Any series of Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
to be distributed upon liquidation, dissolution or winding up. There are no
agreements or understandings for the issuance of Preferred Stock, and the Board
of Directors has no present intent to issue any Preferred Stock. The existence
of authorized but unissued Preferred Stock may enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in the Company's
best interests, the Board of Directors could cause shares of Preferred Stock to
be issued without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquiror or insurgent stockholder or stockholder group. The issuance of shares
of Preferred Stock pursuant to the Board of Directors' authority described above
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock and adversely affect the rights and

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<PAGE> 49

powers, including voting rights, of such holders and may have the effect of
delaying, deferring or preventing a change in control of the Company.

WARRANTS

The Warrants will be issued in registered form pursuant to an agreement
dated January 13, 1998 (the "Warrant Agreement"), between the Company and
Continental Stock Transfer Corporation, as Warrant Agent (the "Warrant Agent").
The following discussion of certain terms and provisions of the Warrants is
qualified in its entirety by reference to the Warrant Agreement. A form of the
certificate representing the Warrants which form a part of the Warrant Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.

Each of the Warrants entitles the registered holder to purchase one share
of Common Stock. The Warrants are exercisable at a price equal to $6.25 (which
exercise price has been arbitrarily determined by the Company and the
Representatives) subject to certain adjustments. The Warrants are entitled to
the benefit of adjustments in their exercise prices and in the number of shares
of Common Stock or other securities deliverable upon the exercise thereof in the
event of a stock dividend, stock split, reclassification, reorganization,
consolidation or merger. The Warrant exercise period and the Warrant exercise
price may not be changed or revised by the Company without the prior written
consent of First London.

The Warrants may be exercised at any time and continuing thereafter until
5:00 pm on January 13, 2003, unless such period is extended by the Company.
After the expiration date, Warrant holders shall have no further rights.
Warrants may be exercised by surrendering the certificate evidencing such
Warrant, with the form of election to purchase on the reverse side of such
certificate properly completed and executed, together with payment of the
exercise price and any transfer tax, to the Warrant Agent. If less than all of
the Warrants evidenced by a warrant certificate are exercised, a new certificate
will be issued for the remaining number of Warrants. Payment of the exercise
price may be made by cash, bank draft or official bank or certified check equal
to the exercise price.

Warrant holders do not have any voting or any other rights as shareholders
of the Company. The Company has the right at any time to redeem the Warrants, at
a price of $.05 per Warrant, by written notice to the registered holders
thereof, mailed not less than 30 nor more than 60 days prior to the Redemption
Date. The Company may exercise this right only if the closing bid price for the
Common Stock for seven trading days during a 10 consecutive trading day period
ending no more than 15 days prior to the date that the notice of redemption is
given, equals or exceeds $10.00 per share, subject to adjustment. If the Company
exercises its right to call Warrants for redemption, such Warrants may still be
exercised until the close of business on the day immediately preceding the
Redemption Date. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable, and the holder thereof will be entitled
only to the repurchase price. Notice of redemption will be mailed to all holders
of Warrants of record at least 30 days, but not more than 60 days, before the
Redemption Date. The foregoing notwithstanding, the Company may not call the
Warrants at any time that a current registration statement under the Securities
Act is not then in effect. Any redemption of the Warrants during the one-year
period commencing January 13, 1998 shall require the written consent of First
London.

The Warrant Agreement permits the Company and the Warrant Agent without the
consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that the Company and the Warrant
Agent deem necessary or desirable that are not inconsistent with the provisions
of the Warrants and that do not materially adversely affect the interest of any
Warrant holder.

In order for the holder to exercise a Warrant, there must be an effective
registration statement, with a current prospectus on file with the Commission
covering the shares of Common Stock underlying the Warrants, and the issuance of
such shares to the holder must be registered, qualified or exempt under the laws
of the state in which the holder resides. If required, the Company will file a
new registration statement with the Commission with respect to the securities
underlying the Warrants prior to the exercise of such Warrants and will deliver
a prospectus with respect to such securities to all holders thereof as required
by Sec-

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<PAGE> 50

tion 10(a)(3) of the Securities Act. See "Risk Factors -- Necessity to Maintain
Current Prospectus" and "State Blue Sky Registration Required to Exercise
Warrants."

In connection with the Stevens Merger, at the Closing, the Company will
issue warrants exercisable for 250,000 shares to Joseph Stevens Group, Inc.,
exercisable at the same price and entitled and subject to the same terms and
conditions as the Warrants described above.

In connection with his employment agreement, at the Closing, at the Closing
the Company will issue warrants exercisable for 25,000 shares to Mark D.
Mastrini, exercisable at the same price and entitled and subject to the same
terms and conditions as the Warrants described above.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved either the transaction in which
the interested stockholder became an interested stockholder or the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding stock held by directors who are
also officers of the corporation or by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (iii) following
the transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of the stockholders by the affirmative vote of the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S BYLAWS

Certain provisions of the Certificate and Bylaws of the Company summarized
in the following paragraphs may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.

CLASSIFIED BOARD OF DIRECTORS

The Certificate provides for the Board of Directors to be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year.
This provision, when coupled with the provisions of the Certificate and Bylaws
authorizing only the Board of Directors to fill vacant directorships, will make
it more difficult for a stockholder to remove incumbent directors and
simultaneously gain control of the Board of Directors by filling the vacancies
created by such removal with its own nominees.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

The Company's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder, to be timely, must be received no later than the
close of business on the day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude

50
<PAGE> 51

some stockholders from bringing matters before the stockholders at an annual or
special meeting or from making nominations for directors at an annual or special
meeting and may be deemed to have an anti-takeover effect in that they may
delay, defer or prevent the Company from taking actions, including the election
of new directors, that a stockholder might consider in the Company's best
interests.

LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS AND INDEMNIFICATION.

The Company's Certificate of Incorporation eliminates, to the fullest
extent now or hereafter permitted by Delaware law, liability of a director to
the Company or its stockholders for monetary damages for a breach of such
Director's fiduciary duty as a Director. The Delaware General Corporation Law
presently permits such limitation of a Director's liability except where a
Director (i) breaches his or her duty of loyalty to the Company or its
stockholders, (ii) fails to act in good faith or engages in intentional
misconduct or a knowing violation of law, (iii) authorizes payment of an
unlawful dividend or stock repurchase, or (iv) obtains an improper personal
benefit.

This provision is intended to afford Directors additional protection, and
limit their potential liability, from suits alleging a breach of the duty of
care by a Director. The Company believes this provision will assist it in
maintaining and securing the services of Directors who are not employees of the
company. As a result of the inclusion of such a provision, stockholders may be
unable to recover monetary damages against Directors for actions taken by them
that constitute negligence or gross negligence or that are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to stockholders for any particular case, stockholders may
not have any effective remedy against the challenged conduct. The Company's
Bylaws also provide that Directors and officers shall be indemnified against
liabilities arising from their service as Directors or officers to the fullest
extent permitted by law, which generally requires that the individual act in
good faith and in a manner he or she reasonably believes to be in or not opposed
to the Company's best interests.

TRANSFER AGENT, REGISTRAR AND WARRANT AGENT

The transfer agent and registrar for the Common Stock, and the Warrant
Agent for the Warrants is Continental Stock Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Upon the closing of this Offering, the Company will have 7,693,042 shares
of Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the 1,350,000 shares being offered by
the Company hereby and the 819,566 Registered Shares being offered by the
Selling Securityholders pursuant to the Prospectus Supplement which is a part of
the Registration Statement of which this Prospectus is a part will be freely
tradeable without restriction (except as to affiliates of the Company) or
registration under the Securities Act, subject to the restrictions on the sale
of the Registered Securities described below. The remaining outstanding shares
of Common Stock will be "restricted shares" as defined in Rule 144 under the
Securities Act ("Rule 144").

Of the 5,959,709 previously issued and outstanding shares of Common Stock,
519,566 are being registered on behalf of the Selling Securityholders, and the
remainder will become available for resale 90 days after the Closing, subject in
all events to the provisions of Rule 144 under the Securities Act ("Rule 144").
Of such previously issued and outstanding shares (including the shares being
registered on behalf of the Selling Securityholders), the holders of 25,000
shares have agreed not to offer, sell or otherwise dispose of ("Sell") such
shares for a period of 15 days after the Closing; the holders of 2,829,243
shares (including all of the holders of the Common Stock being registered) have
agreed not to Sell such shares for one year after the Closing; the holders of
350,000 shares have agreed not to Sell such shares for 18 months after the
Closing; and the holders of 2,471,966 shares (including the officers and
directors of the Company and Vito Balsamo, a

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<PAGE> 52

former director of the Company) have agreed not to Sell such shares for 2 years
after the Closing, except that each may sell up to 5% of the shares of Common
Stock held by him commencing 90 days after the Closing.

In addition, the sole stockholder of Stevens (also a Selling
Securityholder) has agreed with respect to 300,000 Registered Shares out of the
aggregate 383,333 shares to be received pursuant to the Merger Agreement, that
none of such shares will be Sold over-the-counter or over a public exchange
within 30 days of the closing of the Merger; that during the following eleven
months it may publicly Sell no more than 4,546 shares per month (with any unsold
allowances carried forward to future months) and that during the following
twelve months it may publicly Sell no more than 20,833 shares per month (with
any unsold allowances carried forward to future months). The sole stockholder of
Stevens has agreed with respect to the remaining 83,333 shares to be received
pursuant to the Merger Agreement, that none of such shares will be Sold within
90 days of the Closing and that during the following seven months it will Sell
no more than 11,905 shares per month (with any unsold allowances carried forward
to future months).

To the extent that the "lock-up" agreements have been extended in favor of
the Representatives, the Representatives have no current plans or understandings
to waive, shorten or modify the foregoing lock-up arrangements. The Company will
(i) amend this Prospectus Supplement if these arrangements are waived for 10% or
more of the shares of the Selling Securityholders, and (ii) sticker this
Prospectus Supplement if these arrangements are waived for between 5% and 10% of
the shares of the Selling Securityholders.

The Company has also agreed that, without the prior written consent of the
Underwriters, it will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 1 year after the Closing, subject
to certain limited exceptions. See "Underwriting."

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of the Company's Common Stock (approximately 76,000
shares immediately after this Offering) or the average weekly trading volume of
the Company's Common Stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of sales
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of acquisition of restricted shares from the Company or from any affiliate
of the Company, and the acquiror or subsequent holder thereof is deemed not to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

Since there has been no public market for shares of Common Stock of the
Company, the Company is unable to predict the effect that sales made under Rule
144, pursuant to future registration statements, or otherwise, may have on any
then prevailing market price for shares of the Common Stock. Nevertheless, sales
of a substantial amount of the Common Stock in the public market, or the
perception that such sales could occur, could adversely affect market prices.

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<PAGE> 53

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation ("First
London") and First Liberty Investment Group, Inc. are acting as Representatives,
have severally agreed to purchase from the Company 1,350,000 shares of Common
Stock ("Shares") and 2,700,000 Warrants (collectively, the "Securities"). The
number of Shares and Warrants which each Underwriter has agreed to purchase is
set forth opposite its name.

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME OF UNDERWRITER SHARES WARRANTS
------------------- --------- ---------
<S> <C> <C>
First London Securities Corporation......................... 725,000 1,450,000
First Liberty Investment Group, Inc. ....................... 175,000 350,000
Kashner Davidson Securities Corporation..................... 350,000 700,000
National Securities Corporation............................. 100,000 200,000
Total..................................................... 1,350,000 2,700,000
========= =========
</TABLE>

The Securities are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased. The Warrant exercise period and the Warrant
exercise price may not be changed or revised by the Company without the prior
written consent of First London.

The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Securities offered hereby to the public at the
offering price set forth on the cover page of this Prospectus. The
Representatives have advised the Company that the Underwriters propose to offer
the Securities through members of the NASD, and may allow a concession, in their
discretion, to certain dealers who are members of the NASD and who agree to sell
the Securities in conformity with the NASD Conduct Rules. Such concessions shall
not exceed the amount of the underwriting discount that the Underwriters are to
receive.

The Company has granted to the Representatives an option, exercisable for
45 days from the Effective Date, to purchase up to an additional 202,500 Shares
and an additional 405,000 Warrants at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus (the "Over-
Allotment Option"). The Representatives may exercise the Over-Allotment Option
solely to cover over-allotments in the sale of the Securities being offered by
this Prospectus.

Officers and directors of the Company may introduce the Representatives to
persons to consider the Offering and purchase Securities either through the
Representatives, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any other
compensation.

The Company has agreed to pay the Representatives a commission of 10% of
the gross proceeds of the offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the Over-Allotment Option, if exercised. In
addition, the Company has agreed to pay to the Representatives a non-accountable
expense allowance of three percent (3%) of the gross proceeds of this Offering,
including proceeds from any Securities purchased pursuant to the Over-Allotment
Option. The Representatives' expenses in excess of the non-accountable expense
allowance will be paid by the Representatives. To the extent that the expenses
of the Representatives are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional compensation to
the Representatives. The Company has also agreed to pay the Representatives upon
the exercise or redemption of the Warrants a fee equal to 5% of the gross
proceeds received by the Company from the exercise of the Warrants and 5% of the
aggregate redemption price for the Warrants redeemed. Such fee will be paid to
the Representatives no earlier than 12 months after the Effective Date.
Additionally, the Representatives or their designees must be designated in
writing by the Warrant holders as having solicited the Warrant in order to
receive the fee and such fee shall not be paid with respect to Warrants held in
a discretionary account without prior specific written approval of such exercise
by the discretionary account holder. See "Description of Securities." The
Representatives have informed the

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<PAGE> 54

Company that it does not expect sales to discretionary accounts to exceed 5% of
the total number of Securities offered by the Company hereby. Additionally,
First London shall have the right for two years to nominate an Advisory Director
to the Company's Board of Directors. The Advisory Director will have the same
privileges as a normal director, including equal compensation, but will not have
the right to vote on Board issues.

At the closing of this Offering, the Company will issue to the
Representatives or persons related to the Representatives, for nominal
consideration, a Representatives' Warrants to purchase up to 135,000 shares of
Common Stock and 270,000 Redeemable Common Stock Purchase Warrants ("Underlying
Warrants"). The Representatives' Warrants will be exercisable for a four-year
period commencing December 31, 1998 at exercise prices of 165% and 125%,
respectively, of the price at which the Common Stock and Warrants are sold to
the public, subject to adjustment. Each Underlying Warrant will be exercisable
for a four-year period commencing December 31, 1998 to purchase one share of
Common Stock at an exercise price of $7.8125 per share of Common Stock (125% of
the exercise price of the Warrants offered hereby). The Representatives'
Warrants will not be transferable for one year from the Effective Date, except
(i) to officers of the Representatives, other Underwriters, and officers and
partners thereof; (ii) by will; or (iii) by operation of law.

The Representatives' Warrants contains provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Representatives' Warrants contain net issuance provisions permitting the holders
thereof to elect to exercise the Representatives' Warrants in whole or in part
and instruct the Company to withhold from the securities issuable upon exercise,
a number of securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the effect
of requiring the Company to issue shares of Common Stock without a corresponding
increase in capital. A net exercise of the Representatives' Warrants will have
the same dilutive effect on the interests of the Company's shareholders as will
a cash exercise. The Representatives' Warrants does not entitle the holders
thereof to any rights as a shareholder of the Company until such
Representatives' Warrants is exercised and shares of Common Stock are purchased
thereunder.

The Company has granted to the holders of the Representatives' Warrants
certain rights with respect to registration of the Underlying Warrants and the
Common Stock issuable upon exercise of the Representatives' Warrants and the
Underlying Warrants (the "Registrable Securities") under the Securities Act. For
a period of four years commencing December 31, 1998, the holders representing
more than 50% of the Registrable Securities may require the Company at the
Company's sole expense to prepare and file one registration statement under the
Securities Act with respect to the Registrable Securities. For a period of four
years commencing December 31, 1998, the holders representing more than 50% of
the Registrable Securities also have the right at the Representatives' or
holders' expense to require the Company to prepare and file one registration
statement with respect to the Registrable Securities. In addition, subject to
certain limitations, in the event the Company proposes to register any of its
securities under the Securities Act during the seven year period following the
Effective Date, the holders of the Registrable Securities are entitled to notice
of such registration and may elect to include the Registrable Securities held by
them in such registration statement at the sole expense of the Company.

The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.

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<PAGE> 55

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."

DETERMINATION OF OFFERING PRICE

Prior to the Offering, there has been no public market for the Common Stock
or Warrants. The public offering price of the Common Stock and the Warrants and
the exercise price of the Warrants, as well as the exercise price of the
warrants underlying the Representatives' Warrants, have been determined solely
by negotiations between the Company and the Representatives. Among the factors
considered in determining these prices were the Company's current financial
condition and prospects and the general condition of the securities market.
However, the public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants and the warrants underlying Representatives'
Warrants do not necessarily bear any relationship to the Company's assets, book
value, earnings or any other established criterion of value. See "Risk Factors."

LEGAL MATTERS

The validity of the Securities offered hereby will be passed upon for the
Company by Phillips Nizer Benjamin Krim & Ballon LLP, New York, New York.
Jackson Walker L.L.P., Dallas, Texas, has acted as Counsel for the Underwriters
in connection with this Offering.

EXPERTS

The audited Financial Statements and schedules of the Company included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Killman, Murrell & Company, P.C., independent certified public accountants,
except with respect to the Statement of Operations, Statement of Stockholders'
Equity (Deficit) and Statement of Cash Flows for the year ended December 31,
1994, which have been audited by Feldman Radin & Co., P.C., certified public
accountants ("Feldman"), as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of such firms as experts in
accounting and auditing in giving said reports. Effective on or about August 15,
1995 the Company dismissed Feldman as the Company's principal independent
accountants. The decision to change independent accountants was made in
connection with the Company's relocation of its headquarters from New York City
to Tampa, Florida, and was recommended by the Company's Board of Directors. In
connection with audits of the financial statements of the Company for the year
ended December 31, 1994 and during the interim period through their date of
dismissal, there were no disagreements with Feldman on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which, if not resolved to Feldman's satisfaction, would have caused
them to make reference to the matter in their report. The report of Feldman on
the Company's financial statements for the year ended December 31, 1994 did not
contain an adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles. Further,
during this period, there were no events of the type required to be reported
pursuant to Item 304(a)(1)(iv)(B) of Regulation S-B.

The audited Financial Statements and Schedules of Stevens included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Accetta and Olmsted, Accountancy Corporation, certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of such firms as experts in accounting and auditing
in giving said reports.

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<PAGE> 56

800 TRAVEL SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants (800
Travel Systems, Inc.) -- Killman, Murrell & Co., P.C...... F-2
Report of Independent Certified Public Accountants (1-800
Low Airfare, Inc.) -- Killman, Murrell & Co., P.C......... F-3
Report of Independent Certified Public Accountants (1-800
Low Airfare, Inc.) -- Feldman, Radin & Co., P.C........... F-4
Balance Sheets as of December 31, 1995 and 1996 and
September 30, 1997 (Unaudited)............................ F-5
Statements of Operations for the Fiscal Year Ended December
31, 1994, Eleven Months Ended November 30, 1995, One Month
Ended December 31, 1995, Fiscal Year Ended December 31,
1996, and Nine Months Ended September 30, 1996 and 1997
(Unaudited)............................................... F-6
Statements of Stockholders' Equity (Deficit) for Fiscal Year
Ended December 31, 1994, Eleven Months Ended November 30,
1995, One Month Ended December 31, 1995, Fiscal Year Ended
December 31, 1996, and Nine Months Ended September 30,
1997 (Unaudited).......................................... F-7
Statements of Cash Flows for the Fiscal Year Ended December
31, 1994, Eleven Months Ended November 30, 1995, One Month
Ended December 31, 1995, Fiscal Year Ended December 31,
1996, and Nine Months Ended September 30, 1996 and 1997
(Unaudited)............................................... F-8
Notes to Financial Statements............................... F-9
Pro Forma Condensed Combined Financial Information.......... F-18
Pro Forma Balance Sheets as of December 31, 1996............ F-20
Notes to the Pro Forma Balance Sheet........................ F-21
Pro Forma Statement of Operations for the Year Ended
December 31, 1996......................................... F-22
Notes to the Pro Forma Statement of Operations.............. F-23
Pro Forma Balance Sheets as of September 30, 1997........... F-24
Notes to the Pro Forma Balance Sheet........................ F-25
Pro Forma Statement of Operations for the Nine Months Ended
September 30, 1997........................................ F-26
Notes to the Pro Forma Statement of Operations.............. F-27
</TABLE>

F-1
<PAGE> 57

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

800 Travel Systems, Inc.
Tampa, Florida

We have audited the accompanying balance sheets of 800 Travel Systems. Inc.
as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1996 and the
one month ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 800 Travel Systems, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the year ended December 31, 1996 and the one month ended December 31, 1995,
in conformity with generally accepted accounting principles.

KILLMAN, MURRELL & COMPANY, P.C.

/s/ KILLMAN, MURRELL & COMPANY,
P.C.

------------------------------------
Certified Public Accountants

Dallas, Texas
April 20, 1997

F-2
<PAGE> 58

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

800 Travel Systems, Inc.
Tampa, Florida

We have audited the accompanying consolidated statements of operations,
stockholders' (deficit) and cash flows of 1-800-Low Airfare, Inc. and Subsidiary
(Predecessor Business) for the eleven months ended November 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of 1-800-Low Airfare, Inc. and
Subsidiary's operations and changes in its stockholders' (deficit) and its cash
flows for the eleven months ended November 30, 1995, in conformity with
generally accepted accounting principles.

KILLMAN, MURRELL & COMPANY, P.C.

/s/ KILLMAN, MURRELL & COMPANY,
P.C.

------------------------------------
Certified Public Accountants

Dallas, Texas
April 20, 1997

F-3
<PAGE> 59

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of
1-800-Low Airfare, Inc.

We have audited the accompanying consolidated statement of operations,
changes in stockholders' deficit and cash flows of 1-800-Low-Airfare, Inc. and
Subsidiary for the year ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of consolidated operations and
consolidated cash flows of 1-800-Low-Airfare, Inc., and Subsidiary for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.

FELDMAN, RADIN & CO., P.C.

/s/ FELDMAN RADIN & CO., P.C.

------------------------------------
Certified Public Accountants

New York, New York
June 2, 1995

F-4
<PAGE> 60

800 TRAVEL SYSTEMS, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 19,593 $ 588,960 $ 37,775
Commissions Receivable.................................... 19,613 118,390 488,924
Receivable from AT&T...................................... -- 50,228 --
Prepaids.................................................. -- 28,804 16,617
---------- ----------- -----------
TOTAL CURRENT ASSETS............................... 39,206 786,382 543,316
---------- ----------- -----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT -- NOTE 3.............. 32,418 403,964 450,667
Less Accumulated Depreciation............................. (733) (39,734) (109,420)
---------- ----------- -----------
Net Leasehold Improvements and Equipment........... 31,685 364,230 341,247
---------- ----------- -----------
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Less accumulated amortization of $3,725, $48,425 and
$81,950,
respectively -- Note 2.................................. 1,113,786 1,069,086 1,035,561
---------- ----------- -----------
DEFERRED OFFERING COSTS..................................... 25,502 50,000 608,658
---------- ----------- -----------
OTHER ASSETS
Trademarks, net of accumulated amortization of $1,111,
$15,276 and $26,779, respectively....................... 198,889 199,724 188,221
Related Party Receivables................................. 9,000 109,000 152,635
Bonds and Security Deposits............................... 26,230 31,007 37,847
Merger Deposits and Deferred Acquisition Costs -- Note
10...................................................... -- 99,341 220,341
Prepaid Rent -- Note 5.................................... -- 80,000 71,000
---------- ----------- -----------
TOTAL OTHER ASSETS................................. 234,119 519,072 670,044
---------- ----------- -----------
TOTAL ASSETS....................................... $1,444,298 $ 2,788,770 $ 3,198,826
========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long-Term Debt -- Related
Parties -- Note 4....................................... $ 431,750 $ 280,750 $ 280,750
Accounts Payable.......................................... 96,056 641,592 815,513
Accrued Liabilities....................................... 242,610 227,241 389,131
---------- ----------- -----------
TOTAL CURRENT LIABILITIES.......................... 770,416 1,149,583 1,485,394
DEFERRED RENT............................................... -- 108,721 217,090
LONG-TERM DEBT -- Excluding Current Installments -- Note
4......................................................... 60,000 30,000 30,000
---------- ----------- -----------
TOTAL LIABILITIES.................................. 830,416 1,288,304 1,732,484
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES -- Notes 7 and 10
STOCKHOLDERS' EQUITY -- NOTE 5
Preferred Stock, $100.00 par value, 400 shares authorized;
none issued............................................. -- -- --
Common stock, $.01 par value, 10,000,000 shares
authorized; 3,550,000,
5,951,209 and 5,959,709 shares issued and outstanding,
respectively............................................ 35,500 59,512 59,597
Additional Paid-in-Capital................................ 741,276 4,976,259 4,997,424
Stock Subscriptions Receivable............................ (32,296) (32,296) (23,547)
Retained Deficit.......................................... (130,598) (3,503,009) (3,567,132)
---------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY......................... 613,882 1,500,466 1,466,342
---------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $1,444,298 $ 2,788,770 $ 3,198,826
========== =========== ===========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-5
<PAGE> 61

800 TRAVEL SYSTEMS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
--------------------------- THE COMPANY
ELEVEN -------------------------------------------------------
MONTHS ONE MONTH NINE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31, -------------------------
1994 1995 1995 1996 1996 1997
------------ ------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions..................... $ 622,017 $ 898,479 $ 115,986 $ 2,814,237 $1,899,882 $4,820,022
Ticket Delivery Income.......... -- 192,459 17,984 421,540 289,999 1,196,394
----------- ----------- ---------- ----------- ----------- ----------
Total Revenues............ 622,017 1,090,938 133,970 3,235,777 2,189,881 6,016,416
----------- ----------- ---------- ----------- ----------- ----------
OPERATING EXPENSES
Payroll, commissions and
employee benefits............. 790,859 1,115,403 175,604 2,490,770 1,945,469 2,905,981
Telephone....................... 165,979 392,869 14,527 702,870 451,673 787,488
Ticket delivery expense......... -- 138,798 17,896 407,579 215,810 523,789
Advertising..................... 459,657 333,520 437 137,223 87,244 178,180
General and administrative --
Note 7........................ 1,053,530 1,156,777 53,869 1,768,058 959,526 1,605,833
Interest expense................ 46,417 168,857 4,017 1,114,298 897,070 83,994
----------- ----------- ---------- ----------- ----------- ----------
TOTAL OPERATING
EXPENSES................ 2,516,442 3,306,224 266,350 6,620,798 4,556,792 6,085,265
----------- ----------- ---------- ----------- ----------- ----------
(LOSS) BEFORE OTHER INCOME........ (1,894,425) (2,215,286) (132,380) (3,385,021) (2,366,911) (68,849)
OTHER INCOME...................... -- 41,959 1,782 12,610 69,554 4,726
----------- ----------- ---------- ----------- ----------- ----------
NET (LOSS) INCOME................. $(1,894,425) $(2,173,327) $ (130,598) $(3,372,411) $(2,297,357) $ (64,123)
=========== =========== ========== =========== =========== ==========
Weighted Average Number of Common
Shares Outstanding.............. 3,830,000 3,830,000 3,840,000 4,947,823 4,894,600 5,956,859
=========== =========== ========== =========== =========== ==========
(Loss) Per Common Share........... $ (.50) $ (.57) $ (.03) $ (.68) $ (.47) $ (.01)
=========== =========== ========== =========== =========== ==========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-6
<PAGE> 62

800 TRAVEL SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
------------------ PAID-IN SUBSCRIPTIONS RETAINED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
--------- ------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR BUSINESS
BALANCE, JANUARY 1, 1994............. 751,702 $ 752 $ 205,748 $ -- $ (39,210) $ 167,290
Issuance of common stock........... 248,298 248 194,252 -- -- 194,500
Distribution (Note 5).............. -- -- -- -- (93,500) (93,500)
Net Loss, year ended December 31,
1994............................. -- -- -- -- (1,894,425) (1,894,425)
--------- ------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1994........... 1,000,000 1,000 400,000 -- (2,027,135) (1,626,135)
Net loss, eleven months ended
November 30, 1995................ -- -- -- -- (2,173,327) (2,173,327)
--------- ------- ---------- -------- ----------- -----------
BALANCE, NOVEMBER 30, 1995........... 1,000,000 $ 1,000 $ 400,000 $ -- $(4,200,462) $(3,799,462)
========= ======= ========== ======== =========== ===========
THE COMPANY
Issuance of common stock -- Note
5................................ 3,229,600 $32,296 $ -- $(32,296) $ -- $ --
Issuance of common stock in
connection with debt -- Note 8... 20,000 200 23,800 -- -- 24,000
Purchase of predecessor -- Note
2................................ 300,400 3,004 717,476 -- -- 720,480
Net loss, one month ended December
31, 1995......................... -- -- -- -- (130,598) (130,598)
--------- ------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1995........... 3,550,000 35,500 741,276 (32,296) (130,598) 613,882
Sale of common stock -- net of
expenses of $469,098 -- Note 5... 1,387,500 13,875 2,442,027 -- -- 2,455,902
Issuance of common stock in
connection with debt issuance and
services rendered -- Note 5...... 1,013,709 10,137 1,458,581 -- -- 1,468,718
Issuance of options and warrants
for services and interest........ -- -- 334,375 -- -- 334,375
Net loss, year ended December 31,
1996............................. -- -- -- -- (3,372,411) (3,372,411)
--------- ------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1996........... 5,951,209 59,512 4,976,259 (32,296) (3,503,009) 1,500,466
Issuance of common stock in
connection with debt issuance and
services -- Note 5............... 8,500 85 21,165 -- -- 21,250
Collection of stock subscription... -- -- -- 8,749 -- 8,749
Net income, nine months ended
September 30, 1997 (unaudited)... -- -- -- -- (64,123) (64,123)
--------- ------- ---------- -------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997
(UNAUDITED)........................ 5,959,709 $59,597 $4,997,424 $(23,547) $(3,567,132) $ 1,466,342
========= ======= ========== ======== =========== ===========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-7
<PAGE> 63

800 TRAVEL SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PREDECESSOR BUSINESS THE COMPANY
---------------------------- -------------------------------------------------------
ELEVEN MONTHS ONE MONTH NINE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31, -------------------------
1994 1995 1995 1996 1996 1997
------------ ------------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income..................... $(1,894,425) $(2,173,327) $(130,598) $(3,372,411) $(2,297,357) $ (64,123)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and Amortization....... 9,606 6,752 5,569 97,866 84,069 114,714
Stock, options and warrants issued
for expenses and debt
redemption........................ -- -- -- 1,803,093 803,000 21,250
Prepaid Rent Amortization........... -- -- -- 8,000 5,000 9,000
Changes in operating assets and
liabilities, net of effects of
acquisition:
(Increase) decrease in
receivables....................... (10,782) 8,793 (17,764) (149,005) 27,965 (320,306)
(Increase) decrease in prepaids and
other assets...................... (18,701) (8,055) -- (21,581) 4,766 5,347
Decrease in deferred financing
fees.............................. -- 92,833 -- -- -- --
Increase in related party
receivables....................... -- -- (5,000) (100,000) (100,000) (43,636)
Increase (Decrease) in deferred rent
liability......................... -- (59,929) -- 108,721 67,950 108,369
Increase (Decrease) in accounts
payable and accrued expenses...... 815,967 909,874 77,138 530,167 101,179 335,811
----------- ----------- --------- ----------- ----------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES.......... (1,098,335) (1,223,059) (70,655) (1,095,150) (1,303,428) 166,426
----------- ----------- --------- ----------- ----------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of leasehold improvements and
equipment........................... (22,846) (7,963) -- (371,546) (316,107) (46,703)
Purchase of Trademark................. -- -- -- (15,000) -- --
Merger deposits and deferred
acquisition costs................... -- -- -- (99,341) -- (120,999)
----------- ----------- --------- ----------- ----------- ---------
NET CASH FLOW USED BY INVESTING
ACTIVITIES.................... (22,846) (7,963) -- (485,887) (316,107) (167,702)
----------- ----------- --------- ----------- ----------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Deferred offering cost................ (97,833) -- (25,502) (50,000) -- (558,658)
Proceeds from borrowings, net......... -- 1,202,250 125,750 -- -- --
Principal payments on debt............ (18,944) -- -- (281,000) (190,000) --
Issuance of common stock.............. 194,500 -- -- 2,481,404 1,948,469 --
Proceeds from private placement,
net................................. 1,000,000 -- -- -- -- --
Stock Subscription Collection......... -- -- -- -- -- 8,749
Acquisition of Predecessor Business... -- -- (10,000) -- -- --
Capital distribution.................. (93,500) -- -- -- -- --
----------- ----------- --------- ----------- ----------- ---------
NET CASH FLOW FROM FINANCING
ACTIVITIES.................... 984,223 1,202,250 90,248 2,150,404 1,758,469 (549,909)
----------- ----------- --------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH......... (136,958) (28,772) 19,593 569,367 138,934 (551,185)
CASH AT THE BEGINNING OF PERIOD......... 169,795 32,837 -- 19,593 19,593 588,960
----------- ----------- --------- ----------- ----------- ---------
CASH AT THE END OF PERIOD............... $ 32,837 $ 4,065 $ 19,593 $ 588,960 $ 158,527 $ 37,775
=========== =========== ========= =========== =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest Expense.................... $ 46,417 $ 168,857 $ 4,017 $ 67,205 $ 67,205 $ 83,994
=========== =========== ========= =========== =========== =========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-8
<PAGE> 64

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
DECEMBER 31, 1996 AND 1995

NOTE 1: BUSINESS AND BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES

800 Travel Systems, Inc. (the "Company") is a telemarketing travel company
which provides air transportation reservation services. The Company was formed
in November 1995 to acquire certain of the assets and assume certain liabilities
of 1-800-Low Airfare, Inc. (the Predecessor Business), which occurred December
1, 1995.

The Company, and the Predecessor Business strive to furnish the lowest air
fare available at the time of reservation within the parameters provided by a
customer.

The Company incorporated LAF Financial Services, Inc. ("LAF") on January
16, 1996, in the State of Delaware. At December 31, 1996, LAF had not issued any
stock and had conducted no business activities.

LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment is stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the respective assets, five to ten years.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS

The excess of cost over fair value of net assets acquired is amortized over
a period of twenty-five (25) years. The Company periodically reviews the
carrying amount of this asset and evaluates its recoverability based upon future
estimated operating cash flows.

TRADEMARKS

The cost of the trademarks is being amortized using the straight-line
method over their useful estimated lives of fifteen (15) years.

REVENUE RECOGNITION

Commission revenues are recognized when travel services are ticketed.

NET LOSS PER COMMON SHARE

Net loss per common share is based on the weighted average number of common
shares outstanding, as adjusted for the effects of the application of Securities
and Exchange Commission Staff Accounting Bulletin (SAB) No.83 and unissued
shares in connection with the purchase of the Predecessor Business (at December
31, 1994 and November 30, 1995).

At December 31, 1996 the Company had issued stock options for 300,000
shares of stock and stock warrants for 275,000 shares of stock, the earnings per
share computation did not include the exercise of the stock options and warrants
due to the antidilutive effect.

TAXES ON INCOME

The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which utilizes an
asset and liability approach in determining income tax expense.

F-9
<PAGE> 65

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 1: BUSINESS AND BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES -- (CONTINUED)
STOCK BASED COMPENSATION

In October 1995, the Financial Accounting Standard Board issued Statement
No. 123, "Accounting for Stock Based Compensation." Statement No. 123
established a fair value method for accounting for stock-based compensation
plans either through recognition or disclosure. The Company has recognized in
the accompanying statements of operations the fair value amounts applicable to
stock-based compensation.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from estimated
amounts.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform with the
current presentation.

NOTE 2: ACQUISITION

The Company acquired certain of the assets, assumed certain liabilities and
assumed all operations of the Predecessor Business effective December 1, 1995.
The $820,480 purchase price consisted of $10,000 in cash, $90,000 in notes
payable and 600,400 shares of the Company's common stock (valued at $1.20 per
share). The Company, acting on behalf of the Predecessor Business, agreed to
issue 300,000 of the shares of common stock to those remaining creditors of the
Predecessor Business who elected to convert their claim into stock at the rate
of $10 per share. In 1996, the Creditors representing 153,934 shares of common
stock have converted their claim into stock and 146,066 shares have been issued
to the Predecessor Business. The Company assumed $536,253 of liabilities
pursuant to the purchase agreement and has subsequently agreed to assume certain
additional liabilities aggregating $50,275. Costs in excess of net assets
acquired aggregated $1,117,511.

F-10
<PAGE> 66

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 2: ACQUISITION -- (CONTINUED)
The following summarizes the Predecessor Business's balance sheet at
November 30, 1995 and those assets acquired and liabilities assumed by the
Company from the Predecessor Business:

1-800 LOW AIRFARE, INC.

CONDENSED BALANCE SHEET
(UNAUDITED)
NOVEMBER 30, 1995

ASSETS

<TABLE>
<CAPTION>
NET ASSETS ACQUIRED
AND
PREDECESSOR NET LIABILITIES ASSUMED
BUSINESS BY THE COMPANY
----------- -----------------------
<S> <C> <C>
Current Assets...................................... $ 12,429 $ 5,850
Equipment, net of accumulated depreciation of
$11,472........................................... 32,418 32,418
Deposits............................................ 51,229 51,229
----------- ----------
Total Assets.............................. $ 96,076 $ 89,497
=========== ----------

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

Current Liabilities................................. $ 1,693,788 $ 286,528
Notes Payable....................................... 2,201,750 300,000
Stockholders' (Deficit)
Common Stock................................... 1,000 --
Paid in Capital................................ 400,000 --
Deficit........................................ (4,200,462) --
----------- ----------
Total Liabilities and Stockholders'
(Deficit)............................... $ 96,076 $ 586,528
=========== ----------
Excess of Liabilities over Assets Acquired.......... $ 497,031
Shares issued to Predecessor Business to satisfy its
trade creditors (300,000 shares at $1.20)......... 360,000
Shares issued to satisfy claims of certain note
holders (300,400 shares at $1.20)................. 360,480
Cash Payment........................................ 10,000
Notes Payable issued to Predecessor Stockholders.... 90,000
----------
1,317,511
Less Cost Allocated to Trademarks................... 200,000
----------
Cost in Excess of Assets Acquired................. $1,117,511
==========
</TABLE>

During the acquisition negotiations, the holders of certain notes payable
in the Predecessor Business settled for 300,400 shares of common stock, which
was given a settlement value of $1.20 per share. The $1.20 per share was also
used to determine the number of shares to be issued to the Predecessor Business
to settle claims with its trade creditors.

F-11
<PAGE> 67

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 2: ACQUISITION -- (CONTINUED)
Proforma results of operations as if the Company had acquired the
Predecessor Business on January 1, 1995 would not have been materially different
than the results of operations of the Predecessor for the eleven months ended
November 30, 1995 and accordingly, are not presented.

NOTE 3: LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment by major classification are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold Improvements............................ $ -- $155,885 $ 155,885
Telephone Equipment............................... -- 147,133 155,100
Furniture and Fixtures............................ 18,734 78,106 78,106
Computer Equipment................................ 7,703 14,858 14,858
Office Equipment.................................. 5,981 7,982 7,982
Sabre Equipment................................... -- -- 38,736
------- -------- ---------
32,418 403,964 450,667
Less Accumulated Depreciation................... (733) (39,734) (109,420)
------- -------- ---------
Total Leasehold Improvements and
Equipment............................. $31,685 $364,230 $ 341,247
======= ======== =========
</TABLE>

NOTE 4: NOTES PAYABLE - RELATED PARTIES

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
10% purchase money notes, payable in three annual
installments of $30,000 plus interest, due
November 1998, unsecured........................ $ 90,000 $ 60,000 $ 60,000
10% note payable, principal and interest due March
14, 1996, less unamortized discount of $29,000
attributable to issuance of 20,000 shares of
common stock in 1995............................ 21,000 -- --
10% note payable, interest and principal due July
1, 1997......................................... -- 250,000 250,000
10% note payable, interest and principal due
February 28, 1996............................... 100,000 -- --
10% note payable, interest and principal due on
demand.......................................... 80,000 -- --
10% note payable, interest and principal due
December 31, 1996............................... 100,000 -- --
10% note payable, interest and principal due
December 31, 1996............................... 100,000 -- --
Other............................................. 750 750 750
-------- -------- --------
491,750 310,750 310,750
Less current maturities................. 431,750 280,750 280,750
-------- -------- --------
$ 60,000 $ 30,000 $ 30,000
======== ======== ========
</TABLE>

F-12
<PAGE> 68

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 4: NOTES PAYABLE - RELATED PARTIES -- (CONTINUED)
Approximate maturities of notes payable-related parties at December 31,
1996 are as follows:

In July 1997, the 10% note payable in the amount of $250,000 was extended
to November 30, 1997, and the interest rate was increased to 18%.

NOTE 5: STOCKHOLDERS' EQUITY

In connection with the initial capitalization of the Company 3,229,600
shares of common stock were issued in exchange for subscriptions receivable of
$32,296 (par value). The $32,296 had not been paid as of December 31, 1996.

During February 1996, the Company initiated a private placement of shares
of common stock. As of December 31, 1996, a total of 1,387,500 shares of common
stock had been sold and issued. These shares carry certain resale restrictions.
The total sales price of these shares was $2,845,000. Sales commissions
amounting to $360,000 were paid to related parties.

In February 1996, the Company issued 20,000 shares valued at $50,000 as a
rollover of a past due note payable.

During 1996, the Company issued 100,000 shares of stock to an officer of
the Company as a bonus. An expense of $120,000 has been recognized in connection
this transaction.

A total of 180,000 shares have been issued in 1996, for consulting services
for which an expense of $336,000 has been recognized.

A total of 12,500 shares have been issued in connection with loans
obtained. The value of $15,000 was amortized as additional interest expense over
the term of the loans.

During 1996, the Company issued 40,000 shares of common stock, valued at
$100,000, to its landlord in connection with a lease. This amount will be
amortized as additional rent expense at the rate of $1,000 per month. The
$92,000 unamortized balance is included in prepaid expenses and other assets in
the accompanying December 31, 1996 balance sheet.

In connection with late penalties for past due loans, two related party
creditors received during 1996, 361,209 shares of common stock valued at
$847,718.

In 1996, the Company issued 275,000 warrants to purchase 275,000 shares of
the Company's common stock at a price of 110% of the public offering price. The
warrants can be exercised beginning on the first anniversary date of the public
offering. The fair value of the warrants was twelve and one half cents ($.125)
per warrant (aggregate fair value $34,375). The warrants were issued as
incentive to extend a certain note payable; therefore, the fair value was
recognized as interest expense in 1996.

In 1996, the Company issued options to purchase 300,000 shares of its
common stock at a price of $1.00 per share. These options can be exercised
beginning one year from date of grant. The fair value of the common stock at the
date of issuance of the options was $2.00 per share; therefore, the accompanying
statement of operations for the year ended December 31, 1996, recognized a
consulting expense of $300,000 applicable to

F-13
<PAGE> 69

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 5: STOCKHOLDERS' EQUITY -- (CONTINUED)
the difference between the option exercise price and the fair value of the
shares at the date of the grant of the option.

In 1997, the Company issued 8,500 shares of its common stock valued at
$21,250 for services.

In May 1995, the Predecessor Business completed a Bridge Financing of units
for a total of $800,000, in promissory notes and common stock purchase warrants.
Each unit consisted of a $25,000 12% promissory note and warrants to purchase
6,250 shares of common stock at an exercise price of $5.00. In connection with
this financing, various placement agents received an aggregate total of $90,000
in commissions and warrants to purchase 37,500 shares of stock.

In April 1994, the Predecessor Business purchased all of the rights, title
and interest in the telephone number 1-800-LOW-AIRFARE from a principal
shareholder. The purchase price was $250,000 of which $93,500 was paid and
accounted for as a dividend, with payment of the remaining balance contingent on
the completion of a private placement of equity securities which did not occur.

NOTE 6: INCOME TAXES

The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
--------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards.......................... $ 779,000 $ 44,300
Less valuation allowance.................................. (779,000) (44,300)
--------- --------
Net Deferred Tax Asset............................ $ -- $ --
========= ========
</TABLE>

At December 31, 1996 and 1995, the Company has a tax net operating loss
carryforward of approximately $2,423,000 and $132,000 respectively, to offset
future taxable income. The tax net operating loss carryforwards begin to expire
in 2010. Realization of any portion of the deferred tax asset resulting from the
Company's net operating loss carryforward is not considered more likely than
not. Accordingly, a valuation allowance has been established for the full amount
of the deferred tax asset.

NOTE 7: COMMITMENTS AND CONTINGENCIES

The minimum future office rental commitment for leases approximates the
following:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C> <C>
1997............................................................... $ 180,183
1998............................................................... 196,877
1999............................................................... 196,877
2000............................................................... 213,571
2001............................................................... 213,571
Thereafter......................................................... 1,218,102
----------
$2,219,181
==========
</TABLE>

Rent expense totaled approximately $109,000, $109,000, $5,000, $170,000 and
$201,457 for the year ended December 31, 1994, the eleven months ended November
30, 1995, the one month ended December 31, 1995, the year ended December 31,
1996, and the nine months ended September 30, 1997, respectively.

F-14
<PAGE> 70

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 7: COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The Company entered into a services agreement with a stockholder. The
agreement expired on December 31, 1996, and required $3,000 payments per week
plus expenses. This stockholder was paid services fees amounting to $152,700, a
common stock bonus of 150,000 shares of common stock (fair market value of
$300,000), commissions for sale of stock of $221,000, plus expenses of $199,853
for the year ended December 31, 1996, and $12,000 in services fees for the one
month ended December 31, 1995. For the nine month period ended September 30,
1997, the same stockholder was paid $114,800 as services fees, plus expenses of
$248,790. This stockholder also received from the Predecessor Business services
fees totaling $26,000 for the eleven months ended November 30, 1995.
Additionally, certain stockholders received fees of $5,000, $3,500 and $37,900
for consulting services rendered during the one month ended December 31, 1995,
the eleven months ended November 30, 1995 and the year ended December 31, 1994,
respectively.

In September 1996 the Company entered into a new agreement with its
telephone service provider. Pursuant to the new four-year agreement, the
telephone service provider granted the Company a credit of $15,000 towards
installation charges and an additional $180,000 for general charges in the fifth
month following the initiation of services (subject to forfeiture in the event
the Company discontinues services in the second year of the agreement) and will
grant the Company a credit of $180,000 for general charges in the seventeenth
month following initiation of services. These credits are being recognized as
reductions in telephone expense ratably over the four year term of the
agreement. The agreement requires a minimum annual commitment to the telephone
service provider of $1,680,000.

The Predecessor Business is a defendant in various law suits. The Company
has not contractually assumed any of the potential liabilities from the
Predecessor Business' lawsuits and in management's opinion will not be affected
by the outcome of these legal proceedings.

The Company is dependent on two (2) airlines for approximately forty-five
percent (45%) of its revenues, and the Company's ability to quote air travel
ticket prices, make reservations and sell tickets is dependent upon the
performance of Sabre electronic travel reservation system.

NOTE 8: SUPPLEMENTAL CASH FLOW INFORMATION

For the one month ended December 31, 1995:

1) In connection for the acquisition of the asset and assumption of
certain liabilities of the predecessor business, the Company issued a note
payable of $90,000 and 300,400 shares of stock valued at $720,480 (an
additional 300,000 shares was issued in 1996). The Company acquired assets
totaling $89,499 and assumed liabilities of $586,825. Costs in excess of
net assets acquired, aggregated $1,317,511.

2) The Company issued 20,000 shares of common stock valued at $24,000
in connection with the placement of debt.

3) A stock subscription receivable of $31,796 for the initial
capitalization of the Company was issued.

For the year ended December 31, 1996:

1) The Company issued 20,000 shares of common stock valued at $50,000
for a note payable.

2) The Company issued 12,500 shares of common stock for past due
interest totaling $15,000 on two notes payable.

3) There were 40,000 shares of common stock issued to JFJ Realty as
prepaid rent of $100,000.

F-15
<PAGE> 71

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 8: SUPPLEMENTAL CASH FLOW INFORMATION -- (CONTINUED)
4) Various creditors of the Predecessor Business and the Predecessor
Business were issued 300,000 shares of common stock.

5) The Company issued 361,209 shares of common stock valued at
$847,718 for two past due notes payable.

6) The Company issued 100,000 shares of common stock with a value of
$120,000 as a bonus to the Company's President.

7) Two shareholders were issued 180,000 shares of common stock valued
at $336,000 for consulting services.

8) The Company issued 300,000 stock options with a fair value of $1.00
for services.

9) The Company issued 275,000 warrants with a fair value of $.125 in
recognition of a loan extension.

For the nine months ended September 30, 1997:

1) The Company issued 8,500 shares of common stock valued at $21,250
for services.

NOTE 9: FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including commissions
receivable, accounts payable, and debt approximated fair value due to the
relatively short maturity.

NOTE 10: MERGER AGREEMENT

In November, 1996, Company entered into a merger agreement with the Joseph
Stevens Group, Inc. ("Stevens"). The agreement calls for all of the capital
stock of Stevens to be exchanged for shares of the Company's common stock and a
note payable of $1,578,000 (subject to adjustment for assumed liabilities). The
merger will become effective on the effective date of the Company's planned
initial public offering. The Company has made an escrow payment of $46,665 to
the seller in connection with the anticipated merger. In addition the Company
has incurred costs and expenses associated with the merger of $52,676 and
$145,341 which were deferred at December 31, 1996 and September 30, 1997,
respectively, and made an advance payment on the note payable of $75,000. The
"IPO" deadline, included in the merger agreement, was extended to November 30,
1997, and the Company agreed to pay an extension fee.

Upon the effective date, the Company shall issue to the Selling Shareholder
the greater of (i) 383,333 shares of the company's stock or (ii) that number of
shares of the common stock having an aggregate value of $1,916,665 using the
initial public offering price in calculating the per share value of the company
stock. If, on the second anniversary date of the public offering, the value of
the Company's shares then held by the Selling Shareholder, together with the
aggregate amount of cash and the fair market value of any assets or properties
received by the Selling Shareholder in connection with the sale prior to the
second anniversary of the closing date of all or any of the shares received in
the merger, is less than $2,571,000, then the Company shall issue to the Selling
Shareholder, on the second anniversary of the public offering closing,
additional shares of the Company, using the price of the Company's common stock
on the second anniversary of the public offering closing and an appropriate
number of additional common shares of the Company shall be issued to the Selling
Shareholder based upon such price in order to make up any such deficiency.

As part of the merger agreement, the Company entered into an operating
agreement with Stevens, whereby, the Company assumed all operations of Stevens
as of January 1, 1997, and assumed any economic

F-16
<PAGE> 72

800 TRAVEL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)

NOTE 10: MERGER AGREEMENT -- (CONTINUED)
gains or losses from these operating activities. The financial statement for the
nine months ended September 30, 1997, include the operations of Stevens from
January 1, 1997 to September 30, 1997. The following summarizes the operations
for Stevens for the nine month period ended September 30, 1997 (unaudited):

<TABLE>
<S> <C>
Revenues.................................................... $2,707,387
Operating Expense........................................... 1,779,499
----------
Operating Income............................................ $ 927,888
==========
</TABLE>

NOTE 11: GROSS RESERVATIONS

For the various periods presented in the statements of operations, the
gross dollar amounts for reservations of airline tickets were as follows:

<TABLE>
<CAPTION>
PERIOD AMOUNT
------ -----------
<S> <C>
Nine Months ended September 30,
1997...................................................... $39,152,651
===========
1996...................................................... $16,958,158
===========
Year ended December 31, 1996................................ $23,590,782
===========
One month ended December 31, 1995........................... $ 1,609,426
===========
Eleven months ended November 30, 1995....................... $ 9,647,090
===========
Year ended December 31, 1994................................ $ 5,924,310
===========
</TABLE>

NOTE 12: INTERIM FINANCIAL DATA (UNAUDITED)

The balance sheet of September 30, 1997, and the statements of operations
and cash flows for the nine month period ended September 30, 1997 and 1996, and
the statement of stockholders' equity for the nine month period ended September
30, 1997, are unaudited. The September 30, 1997 statements of operations include
the operations of the Joseph Stevens Group, Inc. for the period January 1, 1997
to September 30, 1997. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and includes all
adjustments, consisting only of normal recurring adjustments necessary to state
fairly the information set forth therein. The data disclosed in the notes to
financial statements for these periods are unaudited. Operating results for the
nine months ended September 30, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.

The following summarizes the results of operations for each of the quarters
in the nine months ended September 30, 1996 and 1997 ('000 omitted):

<TABLE>
<CAPTION>
1996 1997
------------------------------------------ -----------------------------------------
MARCH 31, JUNE 30, SEPT. 30, TOTAL MARCH 31, JUNE 30, SEPT. 30, TOTAL
--------- -------- --------- ------- --------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 364 $ 959 $ 867 $ 2,190 $1,639 $2,083 $2,294 $6,016
Operating Expenses........ 1,539 1,519 1,499 4,557 1,979 1,955 2,151 6,085
(Loss) Income Before Other
Income.................. (1,175) (560) (632) (2,367) (340) 128 143 (69)
Other Income.............. -- 6 64 70 3 2 -- 5
Net (Loss) Income......... (1,175) (554) (568) (2,297) (337) 130 143 (64)
</TABLE>

F-17
<PAGE> 73

800 TRAVEL SYSTEMS, INC.

PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)

In November 1996, 800 Travel Systems, Inc. ("Travel") entered into a merger
agreement whereby all of the outstanding shares of the Joseph Stevens Group,
Inc. ("Group"), a provider of travel ticketing services and telemarketing
services, will be exchanged for a note in the amount of $1,578,000 and 383,333
shares of Travel. The acquisition of Group will be accounted for by Travel as a
purchase whereby the basis for accounting for Group's assets and liabilities
will be based upon their fair market values at the date of the acquisition
(expected to be the date of the initial public offering of Travel).

The unaudited Pro Forma Condensed Combined Statement of Operations (Pro
Forma Statement of Operations) for the year ended December 31, 1996 and the nine
months ended September 30, 1997, gives pro forma effect to the acquisition of
Group (and other adjustments as described in the accompanying notes) as if it
had occurred on January 1, 1996 and 1997, respectively. The Pro Forma Statements
of Operations are based on the historical results of operations of Travel and
Group for the year ended December 31, 1996 and the nine months ended September
30, 1997. The Pro Forma Condensed Combined Balance Sheets as of December 31,
1996 and September 30, 1997 (Pro Forma Balance Sheet) gives pro forma effect to
the acquisition of Group as if it had occurred on those dates. The Pro Forma
Statements of Operations and the Pro Forma Balance Sheets and the accompanying
notes (Pro Forma Financial Information) should be read in conjunction with and
are qualified by the historical financial statements of Travel included
elsewhere herein, and the historical financial statements of Group and notes
thereto appearing elsewhere herein.

The Pro Forma Information is intended for informational purposes only and
is not necessarily indicative of the future financial position or results of
operations of Travel after the acquisition of Group, or the financial position
or the results of operations of Travel that would have actually occurred had the
acquisition of Group been effected as of the date or for the period presented.

F-18
<PAGE> 74

(This page intentionally left blank)

F-19
<PAGE> 75

800 TRAVEL SYSTEMS, INC.

PRO FORMA BALANCE SHEETS
DECEMBER 31, 1996

ASSETS

<TABLE>
<CAPTION>
800 TRAVEL
PRO FORMA SYSTEMS, INC. PRO FORMA
800 TRAVEL JOSEPH STEVENS ADJUSTMENTS- ON A PRO ADJUSTMENTS- PRO FORMA
SYSTEMS, INC. GROUP, INC.(A) ACQUISITION FORMA BASIS STOCK SALE TOTAL
------------- -------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash...................... $ 588,960 $ 116,268 $ (116,268)(G) $ 588,960 $ 3,705,125(H) $ 4,294,085
Trade Commissions
Receivable.............. 118,390 151,761 (151,761)(G) 118,390 -- 118,390
Receivable from AT&T...... 50,228 -- -- 50,228 -- 50,228
Prepaids.................. 28,804 62,790 (62,790)(G) 28,804 -- 28,804
----------- ----------- ----------- ----------- ----------- -----------
TOTAL CURRENT
ASSETS............ 786,382 330,819 (330,819) 786,382 3,705,125 4,491,507
----------- ----------- ----------- ----------- ----------- -----------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT................. 403,964 690,725 (190,725)(C) 903,964 -- 903,964
Less Accumulated
Depreciation............ (39,734) (321,580) 321,580(D) (39,734) -- (39,734)
----------- ----------- ----------- ----------- ----------- -----------
Net Leasehold Improvements
and Equipment........... 364,230 369,145 130,855 864,230 -- 864,230
----------- ----------- ----------- ----------- ----------- -----------
EXCESS OF COST OVER FAIR
VALUE OF NET ASSETS
ACQUIRED.................. 1,069,086 -- 2,940,006(B) 4,009,092 -- 4,009,092
----------- ----------- ----------- ----------- ----------- -----------
DEFERRED OFFERING COSTS..... 50,000 -- -- 50,000 (50,000)(H) --
----------- ----------- ----------- ----------- ----------- -----------
OTHER ASSETS
Related Party
Receivables............. 109,000 -- -- 109,000 -- 109,000
Bonds and Security
Deposits................ 31,007 28,640 (28,640)(G) 31,007 -- 31,007
Merger Deposits and
Deferred Acquisition
Costs................... 99,341 -- (99,341)(F) -- -- --
Prepaid Rent.............. 80,000 -- -- 80,000 -- 80,000
Trademarks................ 199,724 158,600 41,400(E) 399,724 -- 399,724
----------- ----------- ----------- ----------- ----------- -----------
TOTAL OTHER
ASSETS............ 519,072 187,240 (86,581) 619,731 -- 619,731
----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS........ $ 2,788,770 $ 887,204 $ 2,653,461 $ 6,329,435 $ 3,655,125 $ 9,984,560
=========== =========== =========== =========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current Maturities of
Long-Term Debt.......... $ 280,750 $ 779,995(G) $ (779,995)(G) $ 1,858,750 $(1,578,000)(H) $ 280,750
1,578,000(B)
Accounts Payable and
Accrued Expenses........ 868,833 362,257 (362,257)(G) 914,833 -- 914,833
46,000(B)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL CURRENT
LIABILITIES....... 1,149,583 1,142,252 481,748 2,773,583 (1,578,000) 1,195,583
DEFERRED RENT............... 108,721 -- -- 108,721 -- 108,721
LONG-TERM DEBT --
Excluding Current
Installments............ 30,000 1,054,195 (1,054,195)(G) 30,000 -- 30,000
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES... 1,288,304 2,196,447 (572,447) 2,912,304 (1,578,000) 1,334,304
----------- ----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
(DEFICIT)
Preferred Stock........... -- -- -- -- -- --
Common Stock.............. 59,512 88,000 (88,000)(G) 63,345 13,500(H) 76,845
3,833(B)
Additional
Paid-in-Capital......... 4,976,259 369,312 (369,312)(G) 6,889,091 5,219,625(H) 12,108,716
1,912,832(B)
Stock Subscriptions
Receivable.............. (32,296) -- -- (32,296) -- (32,296)
Retained Deficit.......... (3,503,009) (1,766,555) 1,766,555(G) (3,503,009) -- (3,503,009)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY
(DEFICIT)......... 1,500,466 (1,309,243) 3,225,908 3,417,131 5,233,125 8,650,256
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIT).. $ 2,788,770 $ 887,204 $ 2,653,461 $ 6,329,435 $ 3,655,125 $ 9,984,560
=========== =========== =========== =========== =========== ===========
</TABLE>

F-20
<PAGE> 76

800 TRAVEL SYSTEMS, INC.

NOTES TO THE PRO FORMA BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1996

(A) Represents the historical balance sheet information of Group.

(B) Adjusts the assets acquired and liabilities assumed in the acquisition of
Group to reflect the allocation of the estimated purchase price. The
resulting goodwill was calculated as follows:

<TABLE>
<S> <C>
Estimated purchase price:
Amount paid by Note....................................... $1,578,000
Issuance of 383,333 shares of Travel with a fair market
value at the date of acquisition of $5.00 per share.... 1,916,665
Merger deposits and deferred acquisition costs............ 99,341
----------
3,594,006

Less assets acquired:
Equipment................................................. (500,000)
Trademarks................................................ (200,000)
Plus liabilities assumed:
Current liability -- future acquisition costs............. 46,000
Long-term debt............................................ --
----------
Goodwill.......................................... $2,940,006
==========
</TABLE>

Goodwill will be amortized ratably over twenty-five (25) years.

(D) Adjustment to eliminate historical accumulated depreciation.

(E) Adjust Group's trade mark to its $200,000 fair market value. The trade mark
will be amortized over a period of fifteen (15) years.

(F) Eliminate direct costs of acquisition ($52,676) and merger deposit
($46,665).

(G) Adjustment to eliminate assets not acquired and liabilities not assumed from
Group.

(H) Adjustment to reflect the sale of 1,350,000 shares of common stock at a
price of $5.00 plus sale of 2,700,000 warrants at $.125. The offering costs
will approximate $1,854,375. This pro forma adjustment does not include
proceeds from the sale of underwriters' overallotment shares and warrants.

F-21
<PAGE> 77

800 TRAVEL SYSTEMS, INC.

PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
800 TRAVEL
JOSEPH STEVENS SYSTEMS, INC.
800 TRAVEL GROUP, PRO FORMA ON A PRO
SYSTEMS, INC. INC.(A) ADJUSTMENTS FORMA BASIS
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUES................................... $ 3,235,777 $1,664,959 $ -- $ 4,900,736
----------- ---------- --------- -----------
OPERATING EXPENSES
General and Administrative............... 5,408,634 1,640,388 -- 7,049,022
Interest Expense......................... 1,114,298 107,128 157,800(C) 1,379,226
Amortization and Depreciation............ 97,866 113,268 117,665(B) 328,799
----------- ---------- --------- -----------
TOTAL OPERATING EXPENSES......... 6,620,798 1,860,784 275,465 8,757,047
----------- ---------- --------- -----------
(LOSS) BEFORE OTHER INCOME................. (3,385,021) (195,825) (275,465) (3,856,311)
OTHER INCOME............................... 12,610 -- -- 12,610
----------- ---------- --------- -----------
NET (LOSS)................................. $(3,372,411) $ (195,825) $(275,465) $(3,843,701)
=========== ========== ========= ===========
Weighted Average Number of Common Shares
Outstanding.............................. 4,947,823 N/A N/A 5,331,156(D)
=========== ========== ========= ===========
(Loss) Per Common Share.................... $ (.68) N/A N/A $ (.72)
=========== ========== ========= ===========
</TABLE>

F-22
<PAGE> 78

800 TRAVEL SYSTEMS, INC.

NOTES TO THE PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1996

(A) Represents the historical income statement information of Group.

(B) Represent the amortization of goodwill on a straight line basis over 25
years, amortization of trade mark over fifteen (15) years and depreciation
of assets over five (5) years.

(D) Adjusted to reflect the issuance of the 383,333 shares issued in the
acquisition of Group as if it occurred in the beginning of fiscal year 1996.

F-23
<PAGE> 79

800 TRAVEL SYSTEMS, INC.

PRO FORMA BALANCE SHEETS
SEPTEMBER 30, 1997

ASSETS

<TABLE>
<CAPTION>
800 TRAVEL
JOSEPH STEVENS PRO FORMA SYSTEMS, INC. PRO FORMA
800 TRAVEL GROUP, ADJUSTMENTS- ON A PRO ADJUSTMENTS- PRO FORMA
SYSTEMS, INC. INC.(A) ACQUISITION FORMA BASIS STOCK SALE TOTAL
------------- -------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash......................... $ 37,775 $ -- $ -- $ 37,775 $ 4,338,783(D) $ 4,376,558
Trade Commissions
Receivable................. 488,924 -- -- 488,924 -- 488,924
Receivable from AT&T......... -- -- -- -- -- --
Prepaids..................... 16,617 -- -- 16,617 -- 16,617
----------- --------- ---------- ----------- ----------- -----------
TOTAL CURRENT ASSETS... 543,316 -- -- 543,316 4,338,783 4,882,099
----------- --------- ---------- ----------- ----------- -----------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT.................... 450,667 690,725 (190,725)(B) 950,667 -- 950,667
Less Accumulated
Depreciation............... (109,420) (321,580) 321,580(B) (109,420) -- (109,420)
----------- --------- ---------- ----------- ----------- -----------
Net Leasehold Improvements
and Equipment.............. 341,247 369,145 130,855 841,247 -- 841,247
----------- --------- ---------- ----------- ----------- -----------
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED....... 1,035,561 -- 2,940,006(C) 3,975,567 -- 3,975,567
----------- --------- ---------- ----------- ----------- -----------
DEFERRED OFFERING COSTS........ 608,658 -- -- 608,658 (608,658)(D) --
----------- --------- ---------- ----------- ----------- -----------
OTHER ASSETS
Related Party Receivables.... 152,635 -- -- 152,635 -- 152,635
Bonds and Security
Deposits................... 37,847 -- -- 37,847 -- 37,847
Merger Deposits and Deferred
Acquisition Costs.......... 220,341 -- (220,341)(C) -- -- --
Prepaid Rent................. 71,000 -- -- 71,000 -- 71,000
Trademarks................... 188,221 158,600 41,400(B) 388,221 -- 388,221
----------- --------- ---------- ----------- ----------- -----------
TOTAL OTHER ASSETS..... 670,044 158,600 (178,941) 649,703 -- 649,703
----------- --------- ---------- ----------- ----------- -----------
TOTAL ASSETS........... $ 3,198,826 $ 527,745 $2,891,920 $ 6,618,491 $ 3,730,125 $10,348,616
=========== ========= ========== =========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current Maturities of
Long-Term Debt............. $ 280,750 $ -- $1,578,000(C) $ 1,783,750 $(1,503,000) $ 280,750
(75,000)(C)
Accounts Payable and Accrued
Expenses................... 1,204,644 -- -- 1,204,644 -- 1,204,644
----------- --------- ---------- ----------- ----------- -----------
TOTAL CURRENT
LIABILITIES.......... 1,485,394 -- 1,503,000 2,988,394 (1,503,000) 1,485,394
DEFERRED RENT.................. 217,090 -- -- 217,090 -- 217,090
LONG-TERM DEBT --
Excluding Current
Installments............... 30,000 -- -- 30,000 -- 30,000
----------- --------- ---------- ----------- ----------- -----------
TOTAL LIABILITIES...... 1,732,484 -- 1,503,000 3,235,484 (1,503,000) 1,732,484
----------- --------- ---------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock.............. -- -- -- -- -- --
Common Stock................. 59,597 -- 3,833(C) 63,430 13,500(D) 76,930
Additional Paid-in-Capital... 4,997,424 -- 1,912,832(C) 6,910,256 5,219,625(D) 12,129,881
Stock Subscriptions
Receivable................. (23,547) -- -- (23,547) -- (23,547)
Retained Deficit............. (3,567,132) -- -- (3,567,132) -- (3,567,132)
----------- --------- ---------- ----------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY DEFICIT)...... 1,466,342 -- 1,916,665 3,383,007 5,233,125 8,616,132
----------- --------- ---------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)............ $ 3,198,826 $ -- $3,419,665 $ 6,618,491 $ 3,730,125 $10,348,616
=========== ========= ========== =========== =========== ===========
</TABLE>

F-24
<PAGE> 80

800 TRAVEL SYSTEMS, INC.

NOTES TO THE PRO FORMA BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1997

(A) Group sold to Travel its leasehold improvements and equipment and its
trademarks for 383,333 shares of common stock of Travel (valued at $5.00 per
share) and a note for $1,578,000. A complete historical balance of Group has
been previously disclosed at December 31, 1996.

(B) Adjustment to record purchase value as follows:

<TABLE>
<S> <C>
Leasehold Improvements and Equipment........................ $500,000
Trademarks.................................................. 200,000
--------
$700,000
========
</TABLE>

(C) Adjustment to recognize cost of acquisition and applicable goodwill.
Included in the merger deposits was a $75,000 advance payment on the future
note payable.

(D) Adjustment to reflect the sale of 1,350,000 shares of common stock at a
price of $5.00 plus sale of 2,700,000 warrants at $.125. The offering cost
will approximate $1,854,375. This pro forma adjustment does not include
proceeds from the sale of underwriters' overallotment shares and warrants.

F-25
<PAGE> 81

800 TRAVEL SYSTEMS, INC.

PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
PRO FORMA 800 TRAVEL
ADJUSTMENTS FOR SYSTEMS, INC.
800 TRAVEL JOSEPH STEVENS ON A PRO
SYSTEMS, INC. GROUP, INC.(A) FORMA BASIS
------------- --------------- -------------
<S> <C> <C> <C>
REVENUES............................................. $6,016,416 $ -- $6,016,416
---------- --------- ----------
OPERATING EXPENSES
General and Administrative......................... 5,713,557 -- 5,713,557
Interest Expense................................... 83,994 118,350(B) 202,344
Amortization and Depreciation...................... 114,714 -- 114,714
Amortization and Depreciation Expense
Applicable to Joseph Stevens Group, Inc.
Assets........................................ 173,000 --(C) 173,000
---------- --------- ----------
TOTAL OPERATING EXPENSES................... 6,085,265 118,350 6,203,615
---------- --------- ----------
(LOSS) BEFORE OTHER INCOME........................... (68,849) (118,350) (187,199)
OTHER INCOME......................................... 4,726 -- 4,726
---------- --------- ----------
NET (LOSS)........................................... $ (64,123) $(118,350) $ (182,473)
========== ========= ==========
Weighted Average Number of
Common Shares Outstanding.......................... 5,956,859 N/A 6,340,192(D)
========== ========= ==========
(Loss) Per Common Share.............................. $ (.01) N/A $ (.03)
========== ========= ==========
</TABLE>

F-26
<PAGE> 82

800 TRAVEL SYSTEMS, INC.

NOTES TO THE PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997

(A) Group's operations were merged into Travel during the nine month period
ended September 30, 1997; therefore, no statement of operations is available
for Group.

(B) Adjustment to recognize interest on purchase note at the rate of ten
percent (10%).

(C) The September 30, 1997 statement of operations included the following
provision for amortization and depreciation applicable to the Joseph Stevens
operations:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
DESCRIPTION COST LIFE EXPENSE
----------- ---------- -------- -------------
<S> <C> <C> <C>
Equipment.................................... $ 500,000 5 Years $ 75,000
Trademarks................................... $ 200,000 15 Years 10,000
Goodwill..................................... $2,919,006 25 Years 88,000
--------
$173,000
========
</TABLE>

(D) Balance includes the 383,333 shares of Travel's common stock to be issued
when Group purchase is completed.

F-27
<PAGE> 83

JOSEPH STEVENS GROUP, INC.

CONTENTS

<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-29
Financial Statements
Balance Sheet............................................. F-30
Statement of Operations................................... F-31
Statements of Capital Deficit............................. F-32
Statement of Cash Flows................................... F-33
Notes to Financial Statements............................. F-34
</TABLE>

F-28
<PAGE> 84

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
JOSEPH STEVENS GROUP, INC.
San Diego, California

We have audited the accompanying balance sheets of JOSEPH STEVENS GROUP,
INC. as of December 31, 1996 and 1995, and the related statements of operations,
capital deficit, and cash flows for the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JOSEPH STEVENS GROUP, INC.
as of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the two years then ended, in conformity with generally accepted
accounting principles.

ACCETTA AND OLMSTED
Accountancy Corporation
Fountain Valley, California
April 23, 1997

F-29
<PAGE> 85

JOSEPH STEVENS GROUP, INC.

BALANCE SHEET
DECEMBER 31, 1996 AND 1995

ASSETS

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 116,268 $ 60,346
Accounts receivable (Less allowance for doubtful accounts
of $41,098, and $41,098 for 1996 and 1995,
respectively).......................................... 151,761 80,707
Prepaid expenses.......................................... 62,790 1,920
----------- -----------
TOTAL CURRENT ASSETS.............................. 330,819 142,975
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and fixtures.................................... 61,657 8,562
Office equipment.......................................... 591,299 309,177
Automobiles............................................... 37,769 37,769
----------- -----------
690,725 355,508
Less accumulated depreciation.......................... (321,580) (215,313)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT...................... 369,145 140,195
----------- -----------
OTHER ASSETS
Trademarks (Net of amortization of $13,975 and $9,675 for
1996 and 1995)......................................... 158,600 162,315
Warranty -- Note A........................................ 28,640 --
----------- -----------
TOTAL OTHER ASSETS................................ 187,240 162,315
----------- -----------
TOTAL ASSETS...................................... $ 887,204 $ 445,485
=========== ===========

LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... $ 175,595 $ 230,247
Accrued interest payable.................................. 186,662 104,839
Current portion of long-term debt -- Note C............... 779,995 383,760
----------- -----------
TOTAL CURRENT LIABILITIES......................... 1,142,252 718,846
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION -- Note C.............. 1,054,195 937,459
----------- -----------
COMMITMENTS AND CONTINGENCIES -- Note F

CAPITAL DEFICIT -- Note D
Common stock, stated value .05 per share, 20,000,000 shares
authorized, 1,760,000 shares issued and outstanding....... 88,000 88,000
Additional paid in capital................................ 369,312 271,910
Deficit................................................... (1,766,555) (1,570,730)
----------- -----------
TOTAL CAPITAL DEFICIT............................. (1,309,243) (1,210,820)
----------- -----------
TOTAL LIABILITIES AND CAPITAL DEFICIT............. $ 887,204 $ 445,485
=========== ===========
</TABLE>

See accompanying notes

F-30
<PAGE> 86

JOSEPH STEVENS GROUP, INC.

STATEMENT OF OPERATIONS
DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
REVENUES.................................................... $1,664,959 $ 876,739
---------- ----------
OPERATING EXPENSES
General and Administrative................................ 1,639,588 1,164,933
Interest.................................................. 107,128 94,883
Depreciation.............................................. 113,268 69,026
---------- ----------
TOTAL OPERATING EXPENSES.......................... 1,859,984 1,328,842
---------- ----------
OTHER INCOME
Liability Reduction -- Note E............................. -- 200,083
---------- ----------
TOTAL OTHER INCOME................................ -- 200,083
---------- ----------
(LOSS) BEFORE TAXES......................................... (195,025) (252,020)
INCOME TAX BENEFITS (EXPENSE) -- Notes A and B.............. (800) (2,579)
---------- ----------
NET (LOSS).................................................. $ (195,825) $ (254,599)
========== ==========
</TABLE>

See accompanying notes

F-31
<PAGE> 87

JOSEPH STEVENS GROUP, INC.

STATEMENTS OF CAPITAL DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
PAID IN CAPITAL
------------------
COMMON COMMON COMMON
STOCK STOCK STOCK DEFICIT TOTAL
------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994............ $88,000 $271,910 $ -- $(1,316,131) $ (956,221)
Net loss for 1995........................ -- -- -- (254,599) (956,221)
------- -------- ------- ----------- -----------
Balances at December 31, 1995............ 88,000 271,910 -- (1,570,730) (1,210,820)
Issuance of Stock Warrants -- Note D.... -- -- 97,402 -- 97,402
Net loss for 1996........................ -- -- -- (195,825)
------- -------- ------- ----------- -----------
Balances at December 31, 1996............ $88,000 $271,910 $97,402 $(1,766,555) $(1,309,243)
======= ======== ======= =========== ===========
</TABLE>

See accompanying notes

F-32
<PAGE> 88

JOSEPH STEVENS GROUP, INC.

STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.............................. $ 25,748,283 $ 16,484,303
Cash paid to suppliers.................................... (23,991,835) (15,451,991)
Cash paid to employees.................................... (1,948,994) (1,312,647)
Cash paid to interest..................................... (25,305) (16,294)
Cash paid for income taxes................................ (800) (2,579)
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES............. (218,651) (299,208)
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property
and equipment............................................. (48,815) (15,602)
Trademark................................................. (585) --
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES............. (49,400) (15,602)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from
borrowings................................................ 381,977 362,691
Repayment of debt......................................... (58,006) (38,184)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 323,971 324,507
------------ ------------
NET INCREASE IN CASH........................................ 55,920 9,697
CASH AT BEGINNING OF PERIOD................................. 60,348 50,651
------------ ------------
CASH AT END OF PERIOD....................................... $ 116,268 $ 60,348
============ ============
NET LOSS.................................................... $ (195,825) $ (254,599)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY
OPERATING ACTIVITIES
Depreciation & amortization............................... 113,268 69,026
Change in assets and liabilities:
(Increase) in accounts receivable......................... (71,054) (27,787)
(Increase) in other prepaid expenses...................... (60,870) 4,306
(Increase) in prepaid warranty............................ (28,640) -0-
Increase in accrued interest.............................. 81,823 78,589
(Decrease) in accounts payable and accrued expenses....... (57,353) (168,743)
------------ ------------
TOTAL ADJUSTMENTS................................. $ (22,826) $ (44,609)
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES....................... $ (218,651) $ (299,208)
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
TRANSACTIONS
Property and equipment acquired through financing
agreements & stock warrants -- Note D.................. $ 286,402 $ -0-
</TABLE>

See accompanying notes

F-33
<PAGE> 89

JOSEPH STEVENS GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Joseph Stevens Group, Inc. (the Company) was incorporated on January 8,
1990 in the state of California, under the name of Creative Telemarketing
Concepts, Inc. On August 1, 1991, the Company changed its name to Joseph Stevens
Group, Inc.

The Company has two primary operating divisions. The first FLY-4-LESS, a
travel agency, derives income for travel ticketing. The second division,
Creative Telemarketing Concepts, derives income from fees charged for
telemarketing services; however for the years ended December 31, 1996 and 1995
the revenues derived from this division were less than one percent (1%) of
revenues.

Travel Ticket Revenue Recognition

The Company derives substantially all of its income as a travel agency from
travel ticketing. The commissions earned are recognized when travel services are
ticketed.

Property and Equipment

Property and equipment are recorded at cost and depreciated or amortized
utilizing the straight-line method or accelerated methods for all assets over
their estimated useful lives as follows:

<TABLE>
<S> <C>
Office equipment............................................ 5 years
Furniture and fixtures...................................... 7-10 years
Vehicles.................................................... 5 years
</TABLE>

Expenditures that materially increase the asset life are capitalized, while
ordinary maintenance and repairs are charged to operations as incurred. When
assets are sold or retired, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in
earnings.

Trademarks

The cost of trademarks acquired are being amortized on the straight-line
method over their estimated useful lives, 40 years.

Warranty

In 1996, the Company paid $28,640 for an extended warranty on the
acquisition of an ACD switch. The equipment is warranted for three years. The
extended warranty provides benefits in years four and five. The extended
warranty will be amortized over 24 months beginning in 1999.

Income Taxes

Income taxes are accounted for in accordance with statement of Financial
Accounting Standards (SPAS) No. 109, Accounting for Income Taxes, issued by the
Financial Accounting Standards Board (FASB).

Deferred income taxes have been provided for the timing differences between
reporting methods for financial and tax purposes. The items which give rise to
these differences are the use of Modified Accelerated Cost Recovery System
(MACRS) for depreciation for federal income tax purposes, the timing of
California Franchise taxes as a federal deduction, the use of bonus depreciation
for California income tax purposes and net operating loss carry forwards for
both Federal and California income tax purposes.

F-34
<PAGE> 90

JOSEPH STEVENS GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)

NOTE B -- INCOME TAXES

Income tax benefits (expense) consist of the following:

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Federal Tax Benefit:
Currently Payable......................................... $ -- $ --
Deferred Benefit.......................................... 66,413 85,687
Valuation Allowance....................................... (66,413) (85,687)
------- -------
-- --
State Tax Benefit:
Currently Payable......................................... (800) (2,579)
Deferred Benefit.......................................... 9,083 11,719
Valuation Allowance....................................... (9,083) (11,719)
------- -------
(800) (2,579)
------- -------
Income Tax Benefit (Expense)................................ $ (800) $(2,579)
======= =======
</TABLE>

The deferred tax asset is due to the tax benefits to be derived form the
net operating loss carry forwards. However, a valuation allowance has been
provided as realization of the deferred tax asset is not considered more likely
than not.

The statutory rates used to calculate the deferred benefit were 34% Federal
and 9.3% State. The State of California only allows 50% of losses to be carried
forward.

For tax return purposes, at December 31, 1996, the Company has total net
operating loss carry forwards of approximately $1,698,093 for federal purposes
and $852,680 for state purposes, which may be applied against future taxable
income, expiring in the years 2006 through 2011 for federal and 1997 through
2001 for state.

F-35
<PAGE> 91

JOSEPH STEVENS GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)

NOTE C -- LONG-TERM LIABILITIES

A summary of long-term debt, less current maturities is as follows:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Loan payable to GMAC, commenced September 29, 1992,
principal and interest payable monthly at $283, effective
interest rate 2.9%, secured by automobile, maturing August
29, 1996.................................................. $ -- $ 2,236
Capitalized leases payable to finance companies, principal
and interest payable monthly at $2,471, effective interest
rates from 13% to 27.5%, secured by equipment, maturing
March 25, 1999............................................ 30,779 56,292
Note payable to Western Horizons, Ltd., (shareholder),
commenced August 1, 1994, interest only payable monthly
beginning June 1, 1995, effective interest rate 7%,
balance due in full at maturity, July 31, 1999............ 900,000 900,000
Various notes payable to shareholders commencing in 1995 and
1996, principal and interest due at maturity, effective
interest rate 7.5%, maturing December 31, 1996............ 635,191 312,691
Note payable to individual, commencing December 1995 and
November 1996, principal and interest due at maturity,
effective interest rate 7.5%, maturing June 30, 1996, and
December 31, 1996......................................... 100,000 50,000
Note Payable to related party, Trans West Communication
Systems, Inc., commencing January 1996, principal and
interest due monthly at $4,459, effective interest rate
17.9%, maturing April 1, 2001, with a residual payment of
$28,640................................................... 168,221 --
---------- ----------
Total debt.................................................. 1,834,191 1,321,219
Loss current maturities..................................... (779,995) (383,760)
---------- ----------
Long-term debt.............................................. $1,054,196 $ 937,459
========== ==========
</TABLE>

The maturity of loans payable at December 31, 1997 is as follows:

<TABLE>
<S> <C>
1997........................................................ $ 779,995
1998........................................................ 40,409
1999........................................................ 937,618
2000........................................................ 43,319
2001........................................................ 32,850
Thereafter.................................................. --
----------
Total............................................. $1,834,191
==========
</TABLE>

The company has not maintained the terms of the notes payable to Western
Horizons, Ltd., shareholders, or individual. Per verbal agreement, Western
Horizons, Ltd. is allowing for a deferral of interest payments. The company is
currently negotiating a revised loan agreement. Per verbal agreement, the
shareholders and individual lender have extended the terms on their notes.
Management is currently negotiating revised maturity dates.

F-36
<PAGE> 92

JOSEPH STEVENS GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)

NOTE D -- STOCK OPTIONS AND STOCK WARRANTS

The Company has granted stock options to key members of management and to
members of its Board of Directors. As of December 31, 1996, the Company has
granted options for 64,000 shares of common stock. The exercise price of each
option is $1.00 per share of common stock. The options do not have an expiration
date.

In connection with the financing of $286,402 of equipment, $97,402 was paid
with the issuance of detachable stock warrants. Warrants to purchase 70,691
shares of common stock were issued. Upon surrender of a warrant, the holder is
entitled to purchase common stock at $1.375 per share. The warrants expire
December 31, 1999.

NOTE E -- LIABILITY REDUCTION

In prior years, the Company had accrued for disputed liabilities existing
with various vendors in the amount of $235,392. All amounts disputed were in
regards to quality of services rendered to the Company. Due to negotiated
agreements, vendor concessions, and lack of action from the vendors, management
believes it is highly doubtful that these obligations exist. As a precaution,
the Company has accrued for contingent liabilities of 15% of the originally
accrued amount, $35,309. This is included in accounts payable and accrued
expenses. The write-down of the accrued liability of $200,083, is reflected in
earnings in 1995.

NOTE F -- COMMITMENTS AND CONTINGENCIES

Lease Commitment

The Company entered into a three year lease for its operating facility
beginning December 20, 1994. The Company has also entered into a three year
automobile lease beginning September 1, 1995.

As of December 31, 1996, the future minimum rental payments pertaining to
these leases are as follows:

<TABLE>
<CAPTION>
FACILITY AUTOMOBILE TOTAL
-------- ---------- -------
<S> <C> <C> <C>
December 31, 1997...................................... $69,744 $3,980 $73,724
December 31, 1998...................................... -0- 2,653 2,653
Thereafter............................................. -0- -0- -0-
------- ------ -------
$69,744 $6,633 $76,377
</TABLE>

Rental expense for all operating leases for the year ended December 31,
1996 amounted to approximately $89,257.

NOTE G -- SUBSEQUENT EVENTS

Sale of Significant Assets

On January 13, 1997, the Company sold assets to a related company (the
Joseph Stevens Group, LLC, a California limited liability company) for
assumption of debt. The market value of the assets were less than the assumed
debt. Accordingly, as part of this transaction, the Company has entered into a
promissory note payable to the related company. Management is still negotiating
the terms of the note.

F-37
<PAGE> 93

JOSEPH STEVENS GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)

The following summarization reflects the December 31, 1996 condensed
balance sheet separating assets and liabilities to be sold and liabilities
assumed:

<TABLE>
<CAPTION>
THE JOSEPH
800 TRAVEL STEVENS JOSEPH STEVENS
SYSTEMS, INC. GROUP, LLC GROUP, INC.
------------- ---------- --------------
<S> <C> <C> <C>
Current Assets.................................. $ -- $ 330,819 $ 330,819
--------- ---------- -----------
Leasehold Improvements and Equipment............ 690,725 -- 690,725
Less Accumulated Depreciation................. (321,580) -- (321,580)
--------- ---------- -----------
369,145 -- 369,145
--------- ---------- -----------
Other Assets.................................... 158,600 28,640 187,240
--------- ---------- -----------
Total Assets.......................... $ 527,745 $ 359,459 $ 887,204
========= ========== ===========
Accounts Payable and Accrued Expenses........... -- $ 362,257 $ 362,257
Long Term Debt.................................. -- 1,834,190 1,834,190
--------- ---------- -----------
Total Liabilities..................... -- 2,196,447 2,196,447
--------- ---------- -----------
Stockholders' Deficit........................... -- -- (1,309,243)
--------- ---------- -----------
Total Liabilities and Stockholders'
Deficit............................. -- $2,196,447 $ 887,204
========= ========== ===========
</TABLE>

Merger

The Company is currently in negotiations with 800 Travel Systems, Inc. to
perfect a type A merger. The Company will merge into 800 Travel Systems, Inc.
Upon filing the Articles of Merger with the Department of the State of Delaware
in accordance with the laws of the State of Delaware and the filing of the
Certificate of Merger with the Secretary of State of California. On the merger
becoming effective, the Company and 800 Travel Systems, Inc. shall become a
single corporation with 800 Travel Systems, Inc. being the surviving
corporation.

At the effective date, all the shares of the capital stock of the Company
issued and outstanding will be converted into shares of 800 Travel Systems, Inc.
In return, the shareholders of the Company will receive the greater of 1)
300,000 shares of 800 Travel Systems, Inc. stock, or 2) the number of shares of
800 Travel Systems, Inc. having an aggregate total of $1,500,000, using the IPO
opening price.

Interim Operating Agreement

The Company entered into an interim operating agreement with Joseph Stevens
Group LLC, a California Limited Liability Company, and 800 Travel Systems, Inc.,
a Delaware Corporation, in January 1997. The terms of this agreement require 800
Travel Systems, Inc. to maintain the operation of the Joseph Stevens Group, Inc.
until the merger. The interim operating entity will be required to keep separate
books in accordance with generally accepted accounting principles. Termination
of this agreement may only be made with cause as per Paragraph 3.2 of the
interim operating agreement.

NOTE H -- RELATED PARTY TRANSACTIONS

As detailed in Note C, the Company has borrowings from shareholders of
$1,535,191 plus accrued interest as of December 31, 1996.

Additionally, in 1996 the Company purchased equipment in the amount of
$286,402 from Trans West Communication Systems, Inc. One of the owners of Trans
West Communication Systems, Inc. is a member of the Company's Board of Directors
and is a holder of stock options and stock warrants.

F-38
<PAGE> 94

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SECURITYHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Stevens Merger.................... 16
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 25
Management............................ 38
Certain Transactions.................. 43
Principal Stockholders................ 46
Concurrent Offering................... 47
Description of Securities............. 48
Shares Eligible for Future Sale....... 51
Underwriting.......................... 53
Legal Matters......................... 55
Experts............................... 55
Index to Financial Statements......... F-1
</TABLE>

---------------------

UNTIL FEBRUARY 9, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

======================================================

======================================================
800 TRAVEL
SYSTEMS, INC.

1,350,000 SHARES OF

COMMON STOCK

AND

2,700,000 REDEEMABLE

COMMON STOCK PURCHASE WARRANTS
--------------------

PROSPECTUS
--------------------

800 TRAVEL SYSTEMS FIRST LONDON
SECURITIES CORPORATION

FIRST LIBERTY

INVESTMENT GROUP, INC.

January 15, 1998

======================================================